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The New Largest Merchant Cash Advance in History: $90 million +

September 9, 2020
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The largest merchant cash advance in history (at $40 million), first publicly disclosed in 2018, has been outdone. On Tuesday, the Receiver in the Par Funding SEC case revealed that its largest customer had outstanding purchased receivables of $91.3 million. The customer is an office and cleaning supply company based on Long Island. The amount is now the largest known merchant cash advance deal in history.

Par’s second largest customer had outstanding purchased receivables of $35 million.

Par’s total receivables are estimated to be $420 million. $228.8 million of it stems from just 10 customers including the two referenced above, according to a recently filed report.

How NYC Fintech Women is Keeping its Community Going in a Pandemic

May 23, 2020
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NYC Fintech WomenHow does a community of people continue to support each other and network in a pandemic? What is lost when in-person meet ups are replaced by stop-start Zoom conversations? Do geographical limits even exist anymore when everyone is bound to their homes? These are the questions that NYC Fintech Women are dealing with now.

Founded in 2017, NYC Fintech Women is an organization of roughly 5,000 members that aims to provide its members with the opportunity to build a web of connections that might otherwise be out of reach. Open to both men and women, the group revolved around regular gatherings that afforded the chance to rub shoulders with both those entrenched in fintech as well as figures from institutional finance. Ranging from mid-tier employees all the way up to executives, the organization encompasses a broad section of those working in the intersection of finance and technology.

Born out of the frustration that Founder Michelle Tran felt when trying to locate fintech people at New York events which largely catered to institutional and traditional finance, the plan for the organization was two-pronged: get all these fintech types together for easier communication while also creating an environment that will allow women to “build their own board.”

Described by Tran as part of Fintech Women’s ethos, the idea is that you’ll have to build your own team if you’re going to get anywhere. “You really need to build your own personal board in order for any type of career advancement,” Tran explained over a call. “So making sure you’re pulling in the right leaders, the right support systems that are also diverse, and the best way to do that is to have a strong network of people at your fingertips.”

And it’s this ethos as well as the social aspects of community that have been challenged by the pandemic. But determined not to let covid-19 get the best of what the organization has become in the past three years, the group has been forced to adapt.

Like the rest of us, telecommunication is being brought in to replace what once came naturally. Slack will offer the chance to chat as a large group, smaller coffee chats will replace the opportunities to talk amongst peers, and a mentoring program launched in January is in the process of being turned fully virtual. And as well as these developments, the decision to expand beyond New York, a move that’s been on Tran’s mind for a while, is now looking more likely as events go online, removing the barriers that come with location.

“It’s a bit harder to just meet somebody, but we’re going to facilitate a number of different platforms in order to do that,” Tran said. “That’s one of the things that we continue to say is really important, and I think that’s what a lot of people miss too, as we’re all sitting alone in our home or with our families. We missed that engagement that we have with others, so we’re finding ways to do that.”

Robinhood Goes Down Three Times in One Week, And The Timing Couldn’t Be Worse

March 10, 2020
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robinhoodThe free stock trading app Robinhood has gone down three times in the last week, causing angst and legal challenges from customers at a time when the US stock market is tanking. Stemming from uncertainty instilled by the coronavirus as well as worries over Saudi-Russia oil relations, the Dow Jones Index Average had dropped by 2,013 points at market close; the S&P 500 by 7.6%; and the Nasdaq by 7.29%.

Robinhood’s first outage was on Monday, March 2. Lasting only a few minutes, the loss of service coincided with the biggest one-day point gain of the Dow in history. The second came the next day, lasting two hours after the Federal Reserve announced a cut of 0.5% to interest rates.

The Sarasota-based tech giant’s co-CEOs released a statement that Tuesday on the company’s blog placing blame for the outages on their overstressed infrastructure. They claimed that their servers struggled with an “unprecedented load” that led to a “‘thundering herd’ effect—triggering a failure of our DNS system.”

The company has yet to release a statement explaining the third service blackout today, which took place during a period that saw the stock exchange pause trading for 15 minutes to prevent a freefall.

In response, Robinhood customers are threatening legal action. Numerous Twitter accounts have popped up under the name ‘Robinhood Class Action,’ or as some variation of this, with the largest of these having over 7,500 followers at the time this article was published. Travis Taaffe of Florida filed a federal lawsuit on Wednesday on behalf of himself and other traders, claiming that Robinhood was negligent and in breach of contract by failing to “provide a functioning platform” for traders, rendering them unable to move stocks.

Having 10 million customers, the company could be facing a lot of claims. As of last week, Robinhood has been offering its Gold members three months of the subscription for free. The price of this would amount to $15 dollars altogether; and the second cost of the subscription, 5% yearly interest on borrowing above $1,000, will not be waived as part of this compensation. Robinhood has described this offer as a “first step.”

United Capital Source Placed $199M In Deals In 2019

January 5, 2020
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Jared WeitzUnited Capital Source, a commercial finance brokerage based in New York, placed 3,883 deals in 2019 for a grand funding total of $199.3 million. Company CEO Jared Weitz said on LinkedIn of the milestone, “Our employees all saw growth (again) this year both professionally and personally. As we come into 2020 we are going into our 10th year of business!!!!! I cannot wait to see what these next year(s) hold for us. I’m so thankful for our Funding Partners and most of all our wonderful staff.”

Weitz is scheduled to speak at deBanked CONNECT MIAMI on January 16th at the Loews Hotel on a panel discussion about how to make money in 2020.

Fears of Possible Recession Don’t Phase CRE Lenders

December 16, 2019
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This story appeared in deBanked’s Nov/Dec 2019 magazine issue. To receive copies in print, SUBSCRIBE FREE

retail shopsDepending on your vantage point, a slowdown is either already in progress, just around the bend or several years away. But some alternative commercial real estate professionals are trying to filter out the noise.

Instead, they are more aggressively forging ahead with growth plans, including trying to grab market share from banks.

The commercial real estate lending market remains highly competitive and alternative lenders say they remain focused on looking for opportunities to expand their business, even as the possibility of recession looms. At present, a number of professionals don’t see an imminent threat of recession, and even if there is one, they say they stand to benefit from picking up business banks don’t want to take on—or can’t—because of increased regulatory controls imposed on them since the last recession.

There are plenty of opportunities for alternative commercial real estate lenders to get ahead, even in this environment, says Chris Hurn, founder and chief executive of Fountainhead Commercial Capital, a Lake Mary FL-based, non-bank direct small business lender in the commercial real estate lending space.

New Commercial BuildingTo be sure, alternative commercial real estate lenders say that for the most part, there hasn’t been a major pullback in their space. But due in part to mounting economic concerns and changing business priorities, banks—which had already scaled back from their pre- Great Recession exuberance—have been taking an even more cautious approach to lending. This is especially true in certain regions of the country, or in sectors deemed higher-risk such as hospitality and retail, alternative lenders say. While the pullback hasn’t been broad-based, it’s been enough in some cases to create strategic pockets of opportunity for opportunistic non-bank lenders such as private equity funds, debt funds, crowdfunding portals and others.

For many of these commercial real estate professionals, whether or not a recession is on the horizon is not a guessing game that’s worth playing. And with good reason, given how much disagreement there is among market watchers, investment management professionals and others about where the economy is headed.

Certain economic data continues to be strong, for instance, but political and geopolitical factors such as trade wars continue to raise red flags. Then there’s the fatalistic notion that the economy has been on a tear for so long that it’s due for a pullback at some point. This all translates into a hodgepodge of speculation and indecision about the economy’s direction. The dichotomy is evident from the difference in sentiment expressed in two fund manager surveys from Bank of America Merrill Lynch taken a month apart. October’s survey was decidedly bearish; by November, the bulls were back, muddying the waters even more.

Instead of wavering in indecision, however, some alternative commercial real estate players are hunkering down and highly focused on building their business in a cautiously optimistic and strategic manner.

Hurn of Fountainhead Commercial Capital predicts a number of increased opportunities for alternative commercial real estate lenders due to pullback from banks and a growing need for capital. He cautions alternative lenders against being too pessimistic and losing out on potentially lucrative market opportunities as a result.

“IF WE’RE NOT CAREFUL, WE’RE GOING TO TALK OUR WAY INTO RECESSION. IT’S A SELF-FULFILLING PROPHECY”

“I think we might be going into a period of slightly slower growth, but none of the indicators suggest we’re remotely close to where things were 10 years ago,” Hurn says. “If we’re not careful, we’re going to talk our way into recession. It’s a self-fulfilling prophecy.”

Indeed, even as perplexing questions about the economy’s long-term health persist, some alternative commercial lenders anticipate growth in the coming year. Evan Gentry, chief executive and founder of Money360, a tech-enabled direct lender specializing in commercial real estate, says the company’s loan origination business is on track to close between $650 million and $700 million in 2019. That’s expected to increase to about $1 billion in 2020, fueled by growth in some strategic markets, including Washington DC, Atlanta, Miami and Charlotte, N.C., where the company is seeking to add loan origination personnel. Gentry says the company also continues to experience strength in many of the western markets, including the intermountain west markets of Colorado, Utah and Idaho, where growth is expected to continue.

CommLoan, a commercial real-estate lending marketplace in Scottsdale, Ariz., also sees strategic opportunities to grow in this environment. Mitch Ginsberg, the company’s co-founder and chief executive, predicts 2020 will be a strong growth year for his company, after a several-year beta period. CommLoan has plans, for example, to start hiring account executives to build relationships in additional states. Initially, the focus will be on institutions in the Southwestern U.S., with plans to add lenders in Texas, Utah, Colorado and New Mexico in the early part of 2020, Ginsberg says.

“THERE IS STILL AN ENORMOUS AMOUNT OF ACTIVITY”

Though certain regions or business lines within commercial real estate may be experiencing some pullback, he says his overall outlook for the economy and commercial real estate remains strong. “There is still an enormous amount of activity,” he says. “If and when a correction does happen, it’s going to be a lot softer and not that deep and not that long because of the fundamentals in the economy.”

FINDING WAYS TO COMPETE MORE EFFECTIVELY WITH BANKS AND OTHERS

Some commercial real estate professionals say they are focusing more attention on sectors, regions and concentrations that the banks aren’t going after so readily.

If an alternative lender can offer more money than a bank on a particular deal or offer more flexible terms, or do deals that traditional lenders simply won’t do, for example, then it’s a boon for them. For a slightly higher price, alternative lenders—especially those whose business model relies heavily on technology—are able to take on slightly riskier deals than a bank might be able to stomach, says Jacob Goldsmith, managing partner of Goldwolf Ventures LLC, a privately held alternative investment and asset management company with offices in Miami and Austin.

“Alternative lenders are a lot more nimble,” says Goldsmith, who keeps close tabs on the commercial real estate lending industry.

restaurant 3dEspecially given the ambiguous economic climate, there are several areas that could be prime opportunities for savvy alternative commercial real estate lenders to gain a leg up. For instance, some banks of late have shied away from certain special purchase property types like hotels, day care facilities and free-standing restaurants, says Hurn of Fountainhead Commercial Capital. These types of properties are traditionally seen as riskier in the latter part of an economic cycle.

Nonetheless, “there’s opportunity here for non-traditional lenders to step in and fill that gap,” he says. Retail loans are another category where banks have been pulling back. One reason banks are being more cautious is the sentiment that as online shopping becomes more pervasive, there’s less of a need for brick-and-mortar shops. This trend is underscored by the recent announcement of Transform Holdco—the company formed to buy the remaining assets of bankrupt retailer Sears Holdings Corp.—that it would close 96 Sears and Kmart stores by the end of February. Still, some industry watchers aren’t ready to concede retail’s demise.

While these types of announcements fan fears, concern over the death of retail is largely overblown, according to Troy Merkel, a partner and real estate senior analyst at RSM, which provides audit, tax and consulting services. “The banks are being too overly cautious,” he opines.

The opportunity for alternative lenders, he says, is not in funding loans that add to the supply, but rather in funding loans that change the existing supply. While the need for new development may not be as great, there is a growing demand for repurposed properties, he says. This includes upscaling an older mall or turning an existing retail building into a mixed use property, namely a mix of retail stores and multi-family apartment complexes. There is still a real need for these types of developments, Merkel says, and with banks shying away, the door is open for alternative lenders to “make a play,” he says.

Real estate professionals say they also see opportunities for alternative commercial real estate lenders to make loans in areas outside major metro cities, where the competition isn’t as strong.

“There will always be opportunities in the ups and downs, the ebbs and flows of the cycle. You just have to be a lot smarter in this part of the cycle,” says Goldsmith of Goldwolf Ventures.

BECOMING RECESSION-PROOF

Pockets of opportunity notwithstanding, alternative commercial real estate lenders have to play it smart, professionals say. For instance, they should not be overly bullish on a particular sector or throw caution to the wind when it comes to their underwriting practices.

“THIS IS PROBABLY NOT THE TIME TO BE COMPLACENT ANYMORE”

That’s because when the market turns—as it inevitably will at some point—there will likely be more defaults and lenders that haven’t dotted their I’s and crossed their T’s will understandably face stronger headwinds. They need to keep their close eye on expenses as well, which may have ticked upward over the past several years. “People get complacent when times are good. This is probably not the time to be complacent anymore,” says Hurn of Fountainhead Commercial Capital.

Another protective measure against an eventual downturn is to diversify sales channels and property types. “If you put too many eggs in one basket, it’s a problem,” Hurn says.

retail storeIt’s also important for lenders to have their guards up since higher risk deals can lead to losses if a recession hits. Lenders have to be smart when it comes to taking on risk, says Tim Milazzo, co-founder and chief executive of StackSource, an online marketplace for commercial real estate loans. “They have to have a certain expertise in underwriting these transactions correctly and assessing risk,” Milazzo says.

In light of significant ambiguity about where the economy is heading, Gentry of Money360 says his company is protecting itself by taking an ultra- conservative approach. This means, for instance, only making first-lien position loans secured against income producing properties at a loan-to-value ratio on average of 65 percent, he says. Some alternative lenders are making these loans at a loan-to-value ratio of 80 percent or 85 percent, but Gentry says this is too high a rate for his taste. Also, Money360’s loans are also generally short- term—in the two-to-three-year range, which reduces some of the risk and seems especially prudent at this point in the cycle, he says.

When the market turns—as it inevitably will at some point—there will be more loan defaults, and those that are on the more aggressive end of lending will bear most of the challenges, he says.

He cautions other alternative lenders to avoid taking on excessive risk. “You’ve got to be thinking ahead and planning and lending as if the downturn is right around the corner—because it could be,” he says. Even taking a conservative approach, there are still significant business opportunities, he says.

BE ON THE LOOKOUT FOR RECESSIONARY OPPORTUNITIES

Meanwhile, if a recession does hit, alternative commercial real estate lenders say they will have even more opportunities to gain market share, participate in workout financing and hire key personnel. Alternative lenders that are more steeped in technology may potentially have even more of an upper hand since this can enable them to close deals much more efficiently and quickly and at a lower cost, while at the same time giving borrowers broader access.

“In a tighter market, every reduction in rate and cost will make more of a significant difference to borrowers than it does at the moment,” says Ginsberg of CommLoan, the commercial real-estate lending marketplace.

Although there are a growing number of alternative commercial real estate lenders who are relying more heavily on technology than they did in the past, commercial real estate lending still hasn’t flourished online to the extent personal and small business lending has. One reason is that the loans are larger and human intervention is often seen as beneficial, says Gentry of Money360.

However, online lending within the commercial real estate lending space is still on the horizon, according to Ginsberg of CommLoan. “It’s slow-go, but it’s inevitable,” he says.

Peer-to-Peer Lending’s Global Struggle

July 8, 2019
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New rules were introduced to peer-to-peer lending in Britain this month with the introduction of Policy Statement 19/14 by the government. The document heralds in a number of new processes that will be required to be enacted by peer-to-peer lending platforms in the UK by early December this year, if they are to continue operating unmolested.

Among these rules is the expectation for stricter transparency and honesty between platforms and potential investors, specifically with regard to the practice of using borrowers’, investors’, and even the business’s own money to pay for defaulted loans. As well as this there is the introduction of appropriateness tests to ensure that those who are candidates to become investors understand the various risks of the industry they are prospecting.

Such tests aren’t new to the alternative finance industry, as they have been previously employed for both crowd bonds and equity crowdfunding. But that doesn’t mean that they will comfortably slide into use among peer-to-peer lending processes. The question about when they will be asked to complete the test during the application, be it at the beginning, upon completion of the first form, or after receiving confirmation of a loan, remains unanswered; there are concerns that lending platforms will take a ‘tick all boxes’ approach and pose unsatisfactory questions; and the fear that only larger firms will be able to afford the costs to install these compliance checks, thus edging out smaller peer-to-peer lending companies from the market, is common.

US CHINAThe publication of the document comes after years of success for peer-to-peer lending within the British market. With the previous 12 months showcasing £6.7 billion in peer-to-peer loans being taken out, more than any other European country, the market initially appears to be doing well, but stories about firms collapsing or exiting from the industry indicate otherwise. For example, Lendy, one of the first and largest peer-to-peer platforms in the UK collapsed and left 20,000 investors uncertain about the £160 million that was outstanding in loans; while BondMason withdrew completely from the market, pivoting into alternative property investment services.

Looking forward, it appears as if lending platforms in the UK may become less reliant on retail investors and seek out more institutional investors who better understand the risks of peer-to-peer lending.

Peer-to-peer lending has gone through it own iterations in the US, with two platforms still thought of as peer-to-peer (but perhaps are no longer!) recently squaring off with the SEC. Last year, two former executives of Lending Club agreed to settle charges with the SEC for improperly adjusting returns of a related fund and this past April, Prosper Funding LLC agreed to pay a $3 million penalty for miscalculating and materially overstating annualized net returns to retail and other investors.

It could be worse.

China is currently watching its own peer-to-peer lending market collapse, despite the industry previously having drawn 50 million investors. With estimates claiming that half of the market was wiped out in 2018, and forecasts saying that 70% of those that survived will be gone by year end, China is on track to lose 85% of its peer-to-peer platforms within 24 months. This follows a number of cases of executives of Chinese peer-to-peer lending firms embezzling money and fleeing, leading to stories like the 31-year-old woman who hung herself when faced with the reality of losing $40,000 after a shareholder of PPMiao, a state-backed peer-to-peer platform, ran off when the firm went bust, reneging on any accountability.

“It’s amazing how quickly it’s unraveling,” said Zennon Kapron, the managing director of Shanghai-based consulting firm Kapronasia, about the peer-to-peer industry. And while Kapron was speaking about the Chinese market, governments worldwide have shifted from nurturing peer-to-peer lenders to policing them and diligently trying to rein them in.

Will Millennials Bring Non-banks into Their Finances?

April 1, 2019
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social media appsFollowing Apple’s announcement last week of its upcoming Apple Credit Card, one question that comes to mind is: Will people, particularly millennials (now roughly 22 to 37 years old), be up for banking with non-bank companies?

According to an Accenture survey from five years ago, 34% of millennials said they would bank with Apple if such a product were available. Well, five years later, the product is available and Apple is now hoping to capture that demographic. According to the same survey, even more millennials at the time said they would be open to banking with Amazon or Google, and all with no physical branches.

Sankar Krishnan, Executive Vice President, Banking and Capital Markets, at Capgemini, a technology services and consulting company, said that convenience is most important to millennials.

“Millennials and Gen Y live their lives on smartphones… [and] daily comforts such as Uber, Starbucks, Amazon, Tinder and Netflix, are just a swipe away,” Krishan said in an interview in Forbes last year. “As a result, [they] have become accustomed to a quality digital customer experience where ease of use and inbuilt functionality are front and center.”

The implication is that any digital company with enough visibility and the ability to execute is fair game to enter the banking business. Why not Netflix? But Tinder?   

Regardless, most major technology companies, like Amazon, Google, Facebook and Uber, are already in the payments space in one way or another. While potentially jarring at first, it seems that many millennials are ready to allow non-bank brands to become more a part of their finances.

Yet despite all the talk of how millennials are willing to break with convention, almost half of millennials said they would not consider switching to a bank that had no physical branches, according to a January 2019 survey conducted by eMarketer.com, which creates marketing reports.

“Though [millennials] may use branches less than older consumers, they don’t want to forgo the option of going to a physical location,” said eMarketer principal analyst Mark Dolliver. “The step from ‘digital’ to ‘digital-only’ is a big one, and many millennials will be in no hurry to take it.”  

Wintrust Expands Accounts Receivables Financing

December 17, 2018
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Today, Wintrust announced the creation of Wintrust Receivables Finance, an expansion of the company’s asset-based lending group, according to a story in Monitor Daily. This translates to the addition of a specialized team focused on accounts receivables financing to middle market companies, with revenues between $10 million and $300 million.

“We think this team is a great expansion to our current services,” said Edward J. Wehmer, Founder and CEO of the Chicago-based regional bank. “Wintrust Receivables Finance makes our asset-based lending even more robust and competitive.”

Subprime Lending to Increase in 2019

December 12, 2018
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credit line increaseSubprime loans are expected to increase in 2019, according to data from TransUnion. The data from a November 2018 report shows that Outstanding Unsecured US Personal Loan Balances have been increasing since 2013, and the increase was most dramatic from 2017 to 2018, jumping 18% from Q3 2017 to $132.4 billion in Q3 2018. The TransUnion data was also presented in a graph in a Quartz story today. According to a TransUnion projection, the total of unsecured personal US loan debt will grow by 20% next year, to roughly $156 billion in Q3 2019.

The last three months of 2018 will be one of the biggest quarters ever for consumer loan origination, according to Jason Laky, TransUnion’s consumer-lending business lead.

“A lot of it is being driven by non-prime and subprime originations,” Laky said.

At the Money 20/20 Conference in October, David Kimball and Ken Rees, the respective CEOs of Prosper and Elevate, were asked if they were concerned about a potential recession. Kimball said that Prosper, which provides loans to prime customers, has begun underwriting more conservatively. Meanwhile, Rees said that Elevate, which serves subprime customers, isn’t very concerned.

“Our customers are always living in a recession, so they know how to work with it,” Rees said.

The Quartz story predicts that payday lending, which competes with online subprime lenders, will also increase given that the CFPB has stopped aggressively trying to curtail these storefront businesses.    

“The CFPB leadership changed and made very clear statements to the market that they’re going to have a lighter touch on regulations, especially subprime regulation,” Laky said.

nCino Partners With Santander

July 24, 2018
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Pierre Naude
Pierre Naudé, CEO, nCino

nCino partnered with Santander Bank last week, its latest in a string of partnerships with major banks.

“Innovative institutions such as Santander Bank understand the importance of ensuring the customer experience is as fast, easy and intuitive as possible,” said Pierre Naudé, CEO of nCino. “[Santander] also recognizes that a shiny front end means nothing if the middle and back office doesn’t embrace at least the same degree of automation and intelligence.”

nCino is a cloud-based lending platform that grew out of Wilmington, North Carolina-based Live Oak Bank in 2012. Its founder, James Mahan III, then CEO of Live Oak Bank, along with his team, recognized a need to make the commercial lending process less time-consuming. So they created the nCino Bank Operating System internally for Live Oak Bank. But it soon attracted the interest of other financial institutions, in the US and beyond.

Last year, nCino told deBanked in that in addition to working with Live Oak Bank, it was working with more than 150 other financial institutions in multiple countries, including nine of the top 30 US banks. Now, according to the nCino website, over 200 banks and credit unions of varying sizes use the company’s Bank Operating System. TD Bank and SunTrust are among their largest bank partners.

An nCino spokesperson told deBanked that its Bank Operating System is sold on a subscription-basis that is driven by individual annual user licenses. This allows employees, executives and other stakeholders of a financial institution to access the benefits and functionality of nCino’s solution. nCino spun off from Live Oak Bank and became its own entity in 2014. Separately, Live Oak Bank (NASDAQ: LOB) went public in 2015.

Santander BankSantander will be using nCino’s platform for its business banking clients. Santander says that nCino’s cloud-based platform is accessible to customers from any device and will reduce the time it takes Santander to deliver loan decisions from start to finish by approximately 40 percent. In conjunction with a partnership with Accenture, Santander will be using nCino’s platform to help with customer relationship management, loan origination, account opening, workflow, enterprise content management, and instant reporting capabilities.

“Respecting our customers means giving them more insight into the loan process and getting them their money faster without any impediments so they can focus on running their businesses,” said Amir Madjlessi, Executive Vice President and Managing Director of Business Banking at Santander. “nCino’s platform automates the lending process from start to finish in a way that ensures a seamless, transparent experience for our customers that reduces delays and inefficiencies and securely connects our clients to our bankers whenever they need them with the touch of a button.”

nCino employs 500 people and is headquartered in Wilmington, North Carolina. The company recently opened an office in London and has plans to open additional offices in Australia and Canada later this year, according to a company spokesperson.

BCFP Launches Regulatory Sandbox for Fintech Companies

July 23, 2018
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Mick Mulvaney
Acting Director Mick Mulvaney | Photo Credit: Gage Skidmore

Mick Mulvaney, the Acting Director of the Bureau of Consumer Financial Protection (Bureau), told The Wall Street Journal last week that the Bureau has launched a “regulatory sandbox” to help fintech firms develop new products and services.

A regulatory sandbox is a framework set up by a regulator that allows certain fintech companies to conduct experiments for innovative products under the supervision of the regulator. The launch of this BCFP regulatory sandbox coincides with the hiring of Paul Watkins last week as Director of the Bureau’s new Office of Innovation.   

It would seem no coincidence that Watkins was chosen to direct this new office at the Bureau because he had been in charge of fintech initiatives at the Attorney General’s Office in Arizona, the first state to create a regulatory sandbox earlier this year. Illinois is the process of creating a regulatory sandbox. And state banking regulators in New England spoke to deBanked last year about the possibility of a regional regulatory sandbox. According to an American Banker story, the model for the sandbox follows a 2014 initiative in the UK called Project Innovate, designed to promote competition while focusing on consumer interests. Currently, regulatory sandboxes have been implemented in other countries, including Abu Dhabi, Australia, Canada, Denmark, Hong Kong and Singapore, according to the New York University Journal of Law and Business.

Regulatory sandboxes are controversial. Before the Arizona bill passed allowing for the creation of the regulatory sandbox, a number of consumer advocacy groups protested, including the Southwest Center for Economic Integrity, Arizona Community Action Association, Children’s Action Alliance, and Protecting Arizona’s Family Coalition. These groups believe that the regulatory sandbox is simply a way of allowing fintech companies to bypass regulations at the expense of consumers.      

Mulvaney wouldn’t agree. “You can make a strong argument…that new technology actually offers new and innovative ways to protect consumers,” Mulvaney said in The Wall Street Journal story.

BFS Co-founder Returns as Temporary CEO

May 23, 2018
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glazerChairman and co-founder of BFS Capital Marc Glazer has assumed the role of Interim CEO. The former CEO, Michael Marrache, is no longer at the company.

“We’re on a nationwide search to find an individual that we feel will be an excellent candidate to continue BFS’s track record as a market leader and help grow the company,” Glazer said.

Founded in 2001, BFS is a veteran in the merchant cash advance industry. More than five years ago, the company began offering a business loan product, which now accounts for more than half of its revenue.

Glazer told deBanked that when BFS started offering its loan product, it widened its customer base significantly such that a sizable percentage of its customers are now business to business companies. Glazer said that MCA funding would not work for these kinds of customers because many of them get paid by check or get paid in larger amounts, but not on a daily basis.    

Glazer said that working with ISO partners has always been a critical part of the BFS business model. What does Glazer look for in an ISO?

“Ultimately, you want to work with ISOs that view the relationship with not only the funder, but the merchant, [in mind,]” he said. “We look at ourselves as a responsible funder and put out offers that we not only think help the merchant, but that have payment terms that the merchant can afford. And the ISOs that we look for are ones that do the same kind of matching with the merchant.”

BFS has funded 400 different types of merchants, from florists to nail salons. But Glazer said that a big portion of the company’s customer base comes from either the hospitality industry or parts of the construction industry, including plumbing. To date, BFS has delivered more than $1.75 billion in total financing to small and mid-sized businesses, including $300 million funded in 2017. Loans are typically offered through the company’s banking partner, Bank of the Internet, according to Glazer.

BFS is headquartered in Coral Springs, FL and has an office in New York and one in southern California. It also includes a wholly owned subsidiary in the UK called Boost Capital. Altogether, BFS employs about 200 people with the majority of employees at its Florida office.

 

SBA 504 Loans Decline YoY 2017-2018

May 8, 2018
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SBA LoansFunding of SBA 504 loans decreased by 26 percent from January through March 2017 compared to January through March of 2018, according to SBA (Small Business Administration) data. In the first three months of 2017, $1,326,601,000 of SBA 504 loans were funded compared to $987,896,000 of SBA 504 loans in the first three months of 2018. The number of companies that received SBA 504 loans also fell January through March year over year. There were 1,574 companies that took SBA 504 loans from January through March of 2017, compared to 1,290 companies over the same period this year, a decrease of 18 percent.

The SBA 504 loan is a government-backed loan that can only be used for commercial real estate or long-term machinery purchases. It differs from the more common SBA 7(a) loan, which is a general purpose loan that can be used for anything from working capital to business acquisition.

When contacted regarding the decline in the dollar amount volume of loans issued this year compared to last, the SBA submitted the following response from Bill Manger, Associate Administrator for the SBA’s Office of Capital Access:

“After a very strong FY17 of 504 SBA Lending, this year the program has performed on par with longer-term trends. We have also seen banks making more conventional loans without the SBA guarantee due to the strength of the U.S. economy and increased small business optimism brought about by the regulatory reforms and tax cuts championed by the Trump Administration. The SBA continues to work with our Certified Development Companies and Lending Partners to further strengthen the 504 Program and ensure it is helping create and grow U.S. small businesses. In addition to our 10 Year and 20 Year Debentures, last month the SBA implemented a 25 Year Debenture for 504 loans, offering fixed-rate financing for an additional 60 months to our small business owners. We believe this new product will be looked upon favorably by our stakeholders and borrowers  by offering a longer term loan that will improve the cash flow of entrepreneurs utilizing the program.”

LendingPoint Debuts Point of Sale Lending Platform for Merchants

March 6, 2018
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LendingPoint announced today the launch of LendingPoint Merchant Solutions, a platform that allows merchants to offer loans to their customers for purchases ranging from furniture to medical procedures.  

“When merchants offer consumer financing at the point of sale, they can remove friction and increase conversion,” said Mark Lorimer, Chief Marketing Officer of LendingPoint. “Our ability to offer shared risk plans, payment servicing plans as well as the full suite of promotional loan products, allows us to service all of a merchant’s customers from 850 all the way down to 500 FICO scores.”

Banks have long provided customers with loans for large priced items, but Lorimer told deBanked that it is very uncommon for non-banks to provide this service, particularly those that carry loans on their own balance sheet.

“The thing that’s different about our program is that in almost every single instance, when you apply for a loan at the point of sale, the first thing that happens is your credit is pulled,” Lorimer said. “This knocks down your credit for a while [and] if you’re in the near prime [FICO score range], 600, 680, you’re usually not going to be approved by a bank.”

Instead of pulling a customer’s credit score, LendingPoint Merchant Solutions does a soft credit pull, which has no impact on a customer’s credit, according to Lorimer.

“Depending on [what] the merchant is interested in, we can get close to 100 percent approval because we can take the loans between 600 and 850 ourselves,” Lorimer said.

LendingPoint offers point of sale loans that range from $500 to $15,000 with terms from 12 to 60 months. And the company responds to customers in a matter of seconds with an approval decision. Merchants get paid in full by LendingPoint Merchant Solutions at the point of sale and the customer does not always pay interest on the loan, as long as they pay within a promotional period set out by the merchant.

In December of last year, LendingPoint acquired LoanHero, which specialized in merchant onboarding, program management and reporting technology. LendingPoint Merchant Solutions combines LoanHero’s know-how with LendingPoint’s credit underwriting, risk management, and customer service expertise. The LoanHero brand has been retired and will now operate as LendingPoint Merchant Solutions.

LendingPoint was founded in 2014 and has issued nearly $500 million in consumer loans to more than 70,000 borrowers.

Drift Capital Partners Credit Facility Shows Confidence in Fintech

January 20, 2018
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Drift Capital Partners, LLC, an alternative asset management company, announced a new $50 million credit facility earlier this month. The funds will be used to “expand its portfolio of structured credit solutions to FinTech enabled Non-Bank Financial Services companies and allow them the opportunity to increase lending to ‘main street’ businesses,” a company release said.

Drift previously provided $25 million in financing to McClean-based Breakout Capital.

“Since its inception, Drift has been focused on developing solutions to bridge the chasm between institutional investors and main street businesses and we believe this facility is an important step toward solidifying that connection,” said McLean Wilson, Managing Partner of Drift in a company release.

Law Firm or Law Fail? Debt Settlement Company’s Legal Footing Called into Question

December 6, 2017
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Above: Michael Hamill gets a lap dance at the office of New Jersey-based telemarketing firm Corporate Bailout.   PLG, a purported Illinois law firm, says that they hire Corporate Bailout to perform tasks for them and that this in effect makes Corporate Bailout a law firm too.   Plaintiffs Yellowstone Capital and Everest contend that neither Corporate Bailout or PLG are valid law firms.

The first major volley in the lawsuit filed by plaintiffs Yellowstone Capital and EBF Partners (“Everest Business Funding”) against a debt settlement company and their alleged ISO partners has been exchanged. And it’s a doozy.

Three of the eight defendants, Mark D. Guidubaldi & Associates, LLC (d/b/a Protection Legal Group) aka PLG, Corporate Bailout, LLC, and PLG Servicing, LLC have sought to collectively dismiss the complaint on the grounds that they are attorneys “engaged in the practice of law with the Merchants as their clients.”

PLG, a self-described “multi-jurisdictional law firm that practices law in various jurisdictions nationwide,” argues in their motion papers that those employed by Corporate Bailout and PLG Servicing carry out certain administrative and support tasks for PLG. And it’s okay that no one at either of those companies are attorneys, they claim, because PLG supervises it all. That enables them to be covered as attorneys in an attorney-client relationship, they assert.

If true, they might want to try harder at supervising. As you might remember, Corporate Bailout, a telemarketing debt settlement firm, was featured on the cover of the New York Post earlier this year after being sued for running an operation “so sexually aggressive, morally repulsive, and unlawfully hostile that it is rivaled only by the businesses portrayed in the films ‘Boiler Room’ and ‘The Wolf of Wall Street.’”

Corporate Bailout’s principal office is in New Jersey. PLG, the law firm, is based in Illinois. Can it really be that the former is considered a law firm through a relationship with the latter?

Whoa, not so fast, says an amended complaint filed by the plaintiffs on Tuesday, which argues that not even PLG is a legitimate law firm. “In fact, none of the Debt Relief Defendants is a law firm engaged in the provision of legitimate legal service,” they contend. “PLG is not even registered as a law firm in Illinois, as required by the rules of the Illinois courts,” they add.

If true, then this case could potentially have far-reaching consequences beyond simple tortious interference.

Some excerpts from this bombshell allegation:

PLG has one employee who is a lawyer, but does not as a rule advise or represent its customers. The advice those merchant customers receive is given by non-lawyers at Corporate Bailout and PLG Servicing, who approach and recruit merchants in ways no lawyer subject to the Rule of Professional Conduct 7.3 would ever be permitted to solicit clients. The non-lawyer personnel at Corporate Bailout and PLG Servicing are not supervised by the solitary lawyer at PLG, but by [Mark] Mancino and [Michael] Hamill, who are not lawyers – an arrangement that, if PLG were a law firm engaged in the provision of legitimate legal services, would violate Rule of Professional Conduct 5.3. To the extent that any of the advice the non-lawyers at Corporate Bailout and PLG Servicing give to merchants in furtherance of the Debt Relief Defendants’ tortious activity is legal advice at all, giving it violates the prohibition on the unauthorized practice of law. PLG orchestrates this activity, which damages the merchants as well as their Merchant Cash Advance Providers, in flagrant and deliberate disregard of the law.

[…]

Although the merchants are told that they are paying the funds into an “escrow account,” in reality PLG does not treat the funds like client escrow funds; it pays itself from them from the beginning, regardless of whether it is providing any services, and with no differentiation between client funds and funds payable to PLG. If PLG really were a law firm engaged in the provision of legitimate legal services, its practices with respect to client funds would be barred by the Rule of Professional Conduct 1.15.


– plaintiffs in the Amended Complaint (<-- click to download a copy)

Plaintiffs have also added Michael Hamill as an individual defendant. Fellow co-defendants Mark Mancino, American Funding Group, Coast to Coast Funding, LLC, ROC Funding Group, LLC, and ROC South, LLC did not file a response to the original complaint.

Small Business Finance Association Releases Best Practices Just in Time

April 13, 2016
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best practices

The Small Business Finance Association (SBFA) has finally released their long awaited best practices guide. The four overarching principles are transparency, responsibility, fairness and security.

Unlike other organizations that have called for APR disclosures, the SBFA believes that the total dollar cost of the transaction is the most important way to achieve that goal. It’s also because the organization’s core members are engaged in a form of factoring most often referred to as merchant cash advances. Those transactions don’t have interest or interest rates and thus no way to ascribe an APR.

As part of the announcement, SBFA VP and RapidAdvance Chairman Jeremy Brown said, “Small business owners are a powerful constituency and we want to give them the utmost confidence in the alternative finance industry. These best practices are our way to prove to small businesses that our industry will consistently offer transparent, fair, and responsible choices to meet their needs.”

The timing could not be better. Earlier this morning, Stephen Denis, the executive director of the SBFA, testified in an Illinois State Senate hearing to protest a controversial bill that would effectively outlaw nonbank business lending under $250,000.

Among the bill’s strangest rules, is the restriction on monthly loan payments to being no more than 50% of a business’s net income, which would cause all businesses breaking even or reporting a loss to be prohibited from obtaining a loan from a nonbank or nonprofit source by law.

Mr. Broker: Stop Helping ME, Compete With YOU

November 29, 2015
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rantingTo quote comedian Dennis Miller, “I rant, therefore I am.” I know everyone is in the holiday spirit and I surely would hate to kill off that jovial mood, but I thought that it was time for Part Three of my Rants, this time on one of the most crucial elements of our industry, The Brokers.

A Look Back At Prior Rants

In Part One I looked at the merchants, and explored some of their questionable behavioral choices. These choices (which a lot of them could be considered flat out stupid) hinder professionals within our industry from truly assisting merchants with their alternative financing needs. These questionable behavioral choices included: not meeting basic deadlines, bank statements being out of order, not being able to find financials, having very bad credit, running the business on overdraft protection, excessive stacking, sending in fake statements/financials, and not disclosing liens, bankruptcies or landlord/mortgage issues.

In Part Two I looked at the funders/lenders and explored some of their questionable practices. These choices hinder broker shops from progressing forward in an industry that’s oversaturated and highly competitive. These choices included: having new deal requirements to keep renewal portfolios, having an incompetent process, allowing merchants to stack, still filing UCCs on good accounts, and 30+ day commission clawbacks.

Stop Helping ME, Compete With YOU

It’s now time for Part Three of the Rants. Mr. Broker, unlike with the merchants and funders where I pleaded with them to “Help ME, Help YOU,” I’m actually going to do the opposite here and plead with you to “Stop Helping ME, Compete With YOU.”

We all know why you are in this industry, you (like myself), believe there is still great opportunity for growth. But some of the things that you do Mr. Broker make it hard for me to figure out if you are competing with me for market share or helping me take market share from you. Please allow me to list some of the things that you do that make it difficult for me to figure out if you are truly against me.

Not Pricing Based On Paper Grade

I understand Mr. Broker, that you believe in the mythical smooth talking, walking, charismatic sales machine, you know, the guy that can sell fire in hell and ice to an Eskimo, but I’m sorry to inform you that no such person exists. If you believe you are going to close your A-paper client by pushing them your 6 month 1.35 factor rate cash advance using your smooth talking skills, then I will not feel sorry for you if your merchant were stolen away by another broker pitching him 6 months at 1.12 – 1.20, which is what I consider to be the proper pricing based on their paper grade.

Forgetting the Endgame

So Mr. Broker, you seem to believe that we are in the lead generation business and not the brokering business. We aren’t paid on lead generation, we are only paid when we successfully broker a deal. To successfully broker a deal, we must find an interested client and match them with a funder that’s interested in funding them. We aren’t paid just to get people to send back an application that we can’t fund anywhere.

So if you propose potential terms without pre-qualifying them just to get an application package back, don’t be surprised if they decide to work with your competitor, the other broker who took the time to pre-qualify them from the beginning.

UCC Marketing

Mr. Broker, it’s understandable that you decided to open up shop in our industry because you heard about something called UCCs, but I know that you will soon figure out that the UCC Boom is Over.

Using Outdated Marketing Tactics

Speaking of UCCs, Mr. Broker why must you only rely on outdated marketing tactics, including UCCs and aged leads, leading to said merchants having 25 calls per week about funding to where they hang up in your face if you even mention you are from a funding company? Do you know that while you fight with 50 other brokers over the attention of one merchant (that doesn’t want to talk to any of you), there’s other brokers out there calling on data that nobody (or very few) people are calling on?

Not Running A Profitable Office

Every business must have a business plan and every business plan must have return on investment (ROI) projections. What are all of the estimated costs that you will have in acquiring a newly funded merchant? What are all of the estimated revenues that will come along with that, such as the new deal commissions, renewal commissions, merchant account conversion residuals, etc? Too many brokers have no idea what their costs are nor estimated revenues are to produce any type of true ROI forecasts. That begs the question, what kind of business are you running, Mr. Broker? It’s a wonder why so many offices fail, they don’t do any planning.

Not Properly Pre-Qualifying The Merchant

Why clog up your funder’s underwriting queue with applicants that have zero chance of being funded because either their cash advance balances are too high, credit scores are too low, bank statements are bad, they are in a restricted industry, or an assortment of other issues? Why not learn the underwriting criteria of your funder and then do efficient pre-qualification on your clients to where you can build a profile of them, estimate their paper grade, and determine if you even have a funder that could review them at this point in time? Or if the merchant is on the cusp of being eligible, help them get to that point. By not pre-qualifying the merchant, all you do is waste your merchant’s time which reduces the chances that they will work with you again in the future.

Submission Hot Shots

This goes with the situation from above. It’s already established Mr. Broker that you might not properly pre-qualify merchants which does nothing but waste their time, but you also hot shot them to 8 lenders. The key here, as mentioned, is that you have to efficiently pre-qualify the merchant to know where they stand and to know the 2 or 3 funders likely to approve them.

Final Word

I rant, therefore I am, as comedian Dennis Miller would say. I surely hope I didn’t kill off your jovial mood this holiday season. This has been the Year of the Broker, and my goal is to help the inexperienced and experienced smaller broker shops. So with that being said, I plead with you Mr. Broker to “Stop Helping ME, Compete With YOU” by no longer repeating these mistakes listed above.

The Telephone Is The Broker’s Best Friend

November 9, 2015
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phones are a broker's best friendAs we enter the second week of November 2015, we are indeed continuing the Year of The Broker, which I believe will not end on Thursday, December 31st at 11:59 p.m., but instead will continue into the year of 2016. As a result, I plan on remaining right here with deBanked to continue the Year of The Broker discussion throughout the entire year of 2016. The mass entrants of new brokers into our space will surely not slow down any time soon, even though only a small percentage of new brokers will actually have some sort of career longevity. For these mass new entrants, they will surely have available a number of different Marketing mediums, but only one (in my opinion) might serve to be the most efficient considering time, costs, access and productivity.

#1.) Indirect Marketing Mediums

– Strategic Partnerships: Will be difficult to establish for new entrants due to established players already having agreements and integrations in place with a lot of the main players. Strategic Partnerships include organizations such as Banks, Credit Unions, Associations, Merchant Processors, etc.

– Mom and Pop Network: Will be difficult to establish for new entrants as there’s only so many sub-agents that could exist at any given time, and they usually (by this point) have already built up close relationships with their Funder Networks and larger Brokerage Houses.

– Indirect Ads and SEO: Will be difficult to establish for new entrants due to the high marketing costs and lower percentage of quality leads that are generated. The fact is that this medium attracts a ton of companies that won’t even qualify for our product, such as a lot of start-ups. Plus established players have pretty much already sealed quality positions and placements with high marketing budgets.

#2.) Direct

– The Mail: Won’t work for most new entrants due to the high cost of postage and packaging. In combination with the low response and conversion rates, for many this medium might not be profitable.

– Email: Only works after speaking with a client and serves as a good form of follow-up, but not good for initial contact as the emails will usually be filtered off as “spam” and one should be very mindful of national and state spam laws in relation to using this medium.

– Fax: Only works after speaking with a client and serves as a good form of follow-up, but not good for initial contact because the medium for initial contact is illegal.

– In-Person: Works decent, however with high gas costs, traffic jams, and other inefficiencies, this should not be used for initial contact, but can be used in conjunction with the Telephone.

……And speaking of the Telephone…….

The Telephone is going to be the most efficient medium used by new entrants and smaller broker shops today due to the following:

  • Ease of Access: All one needs is a web based Predictive Dialer from the likes of a CallFire, YTel or Five9.
  • Cost and Structure Efficiency: You can pay by the hour usage or pay a flat monthly fee for an unlimited monthly call volume. By the dialer being web-based, there are no IT specifications that you have to control on a daily basis.
  • It’s Still Legal For B2B: It’s illegal for B2C in terms of the initial contact, but as of right now, it’s still legal for initial contact on the B2B side.
  • Mass Productivity: It’s a great medium where one can work a 10 hour day from 9:00 a.m. to 7:00 p.m. EST, covering the East, Central, Mountain and West coast time zones. Over the course of these 10 hours, one can complete about 40 – 80 meetings with decision makers, as well as leave about 200 – 250 messages for said decision makers with employees or via voicemail.

Telephone Conversion Analytics

Over my time of directly selling both the merchant cash advance and alternative business loan products, I’ve found the following conversion analytics to be in place for new deals, and the following can assist you with your ROI planning:

  • For every 15 decision makers that you speak to on a cold call, you should get 1 interested lead, or let’s say a conversion of 6.7% to leads. For a clear definition of a lead, refer to a prior deBanked article of mine here. Calling SIC generic listings can be considered a “cold call”.
  • For every 15 decision makers that you speak to on a warm call, you should get 5 interested leads, or let’s say a conversion of 33% to leads. Calling UCCs can be considered a “warm call”.
  • For every 15 leads, you should get 3 completed application packages, or let’s say a conversion of 20%. A complete package includes the application and 3 – 6 months of bank statements.
  • With an efficiently constructed Funder Network based on Paper Grades of 1-2 Funders for A+, A, B/C, and C/D, you should be getting approved files of about 40%, with a closing ratio of 30%.

Final Word

What will happen if B2B Telemarketing becomes illegal for initial contact just as B2C Telemarketing currently is? Would that likely be the final death blow to new brokers and smaller broker shops in terms of their ability to market efficiently and profitably?

I’m not sure, but as of right now, it’s the most efficient form of Marketing medium for new broker entrants and small broker offices. If it were to ever be taken away (become illegal), I think it might be much harder (if not impossible) for smaller broker shops to survive.

World Business Lenders Acquires Uber Capital, Adds Another Branch

October 2, 2015
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acquisitionZachary Ramirez, a Branch Manager for NY-based World Business Lenders (WBL) confirmed the company had set up two new branches.

South Miami-based Uber Capital was acquired and will become a WBL branch. “The founders of Uber Capital, Jessica Fonseca, Tim Fenimore and Tristan Olmedo-Tigertail have joined WBL as Co-Branch Managers,” wrote Ramirez. The company was organized only 8 months ago.

Additionally, WBL has formed a new in-house branch at their 120 W. 45th Street office in Manhattan. “Michael John and his team have joined WBL to establish a new branch designated as the Midtown Branch located at our headquarters location,” Ramirez wrote.

The lender has made scores of small acquisitions this year, particularly merchant cash advance ISOs. As one of the few players in the industry to operate under a multi-branch model, they have no intention of slowing down. “We plan on acquiring many, many more branches in the coming months,” Ramirez posted.