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BCFP Launches Regulatory Sandbox for Fintech Companies
July 23, 2018
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
Chairman 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
Funding 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, 2018LendingPoint 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, 2018Drift 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.
Small Business Finance Association Releases Best Practices Just in Time
April 13, 2016
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
To 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
As 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.
