Ready Capital Was The Biggest PPP Lender By Volume in Round 1 of PPP Funding
April 22, 2020
Ready Capital, a multi-strategy real estate finance company and one of the largest non-bank SBA lenders in the country, was the top PPP lender by loan volume in the country. Company CEO Thomas Capasse appeared on Fox Business yesterday and announced key statistics that aligned with data published by the SBA. By dollars, Ready Capital was the 15th largest PPP lender.
“As a leading non-bank, SBA lender, there’s 14 of us, we’re number two in terms of originations last year,” Capasse said on Fox Business, “we focused broadly, we don’t have deposit relationships, so we open our doors broadly to in particular the smaller mom and pop, the local deli, the pizzeria, the nail salon, so just in terms of the numbers, round one of the PPP, we approved 40,000 loans which is number one in the US, it was about $3 billion in total approvals. And our average balance was only $73,000 versus $230,000 for the average in round one.”
Among Ready Capital’s channels for acquiring PPP loan applications is Lendio, who reported consistent figures (a rough average of $80,000 per PPP loan facilitated), and high volume. Lendio has said on social media that they have been working with several partners, Ready Capital among them.
Ready Capital’s Capasse reasoned that their speed could probably be attributed to an affiliated fintech lender. “We are maybe more efficient than some of the banks because we have an affiliated fintech lender which is able to create online portals and processes to work in a more efficient manner and that enabled us to not only process these loans more efficiently but also to provide broad access to the program, to the smaller business owners.”
The company acquired Knight Capital, a small business finance provider, late last year.
“Panic Induces Panic”: David Goldin on Small Business Funding and the Coronavirus
March 12, 2020With companies in Australia, Britain, and the United States, David Goldin has weathered storms of various sizes and seriousness over the past two decades. Whether it was the recent wildfires that saw state-sized infernos engulf the Australian countryside, the regulatory upheaval that is Brexit, or the unprecedented shockwaves sent by the 2008 financial crisis, the CEO has seen his fair share of global disruption.
So when AltFinanceDaily got in touch with Goldin about his perspective on the coronavirus pandemic, how it compares to what he’s seen before, and what funders should do to combat contagion, he was happy to discuss the insights he’s garnered from twenty years in business.
The following Q&A has been lightly edited for clarity and succinctness:
AltFinanceDaily: Generally speaking, how bad do you think the coronavirus pandemic is going to get?
“I don’t think anyone knows the outcome. I think what you’re going to see is the industry completely change over the next few days. In the last 48 hours you went from mild cancellations to, today alone, the NBA, NHL, and MLB. And Cuomo just announced in New York that there can be no more than 500 people at events, colleges are shutting down left and right, and schools as well. Basically, we’re heading in the direction of shutting down the entire country at some point.
So I think funders have two issues. One is their existing customers, right? And how do you lend in this market? There’s the obvious and the not so obvious, because, for example, a deal that may have been great a few days ago, let’s say there’s a college bar near SUNY Albany, and they just announced this shutting down of schools, that bar may not see any business for who knows how long.
I’m not the CDC, I’m not the WHO, I’m not a medical expert, but I know in life, people are always afraid of the unknown and panic induces panic, but this is just my opinion. So I think once people start getting this virus, which is inevitable, and they recover from it, I think that’s going to offset some of the panic.
I think you’re going to have a couple of more shock factors. I would not be surprised if we learn in the next few weeks that the President of the United States has it.”
And what about our industry specifically?
“I think right now, lenders will say, ‘Well, if I [tighten up], typically what happens in our industry is if a company runs into trouble, it’s usually just that company,’ right? So if they start tightening up, they lose the business.
The entire playing field will be level by Monday or Tuesday of next week, by the latest. I think some of the playbook will be that some funders may take the position to stop funding for the next couple of weeks and look to see what happens because no one knows how bad this is going to get.”
Do you have any advice for funders?
“I think you have to price the risk because I think everyone is foolish to think that the bolts are not going to go off. So you’re either going to have to increase the pricing to the customer or raise the rates to the broker and limit the amount they could charge the customer temporarily for the increased risk your portfolio is now going to take.
I think you need to shorten the term. During the 2008 recession, the industry was at a 1.35 to a 1.37 factor rate, averaging six or seven months. There weren’t too many providers back then going past a year, there really was no such things as a second or third position.
This is a much different world we live in. So I think, unfortunately, some of the platforms that tend to be longer-term players which do one year, two years, three years, even four years, I think they’re going to be in a lot of trouble. Their ships are too far out to sea and I think they’re really going to have to focus on portfolio management and collections.
There’s going to be opportunities in the marketplace for those that don’t take a prudent approach, but I think in the short term people have to shorten their terms, potentially raise pricing for risk, and decrease the amount of capital that they’re taking out of a customer’s gross sales.”
What lessons do you think can be learned from this?
“I think as a platform you have to look at redundancy of capital, and that the time to raise money is when you don’t need it. So I think this could be a lesson for all to perhaps have more than one funding source.
I think brokers are going to really have to diversify. There’s good and bad, I think the approval rates at companies are going to fall through the floor, but I think you’ll get a lot of borrowers over the next few weeks that can typically go to a bank that won’t be able to go to a bank. But you’re going to see a lot of watching and waiting right now. And you’re going to see the industry revert back to where it was a while ago: shorter term deals, pricing in the risk, lower gross sales taken.”
How does this compare to previous crises?
“So I think this one’s a little bit different. It’s affecting everything and your playbook is going to change literally daily. This will be affecting the majority of the major cities. When you’re shutting down things like the MLB, the NBA, the NHL, shutting down colleges and universities, I don’t think this country or the world has ever experienced anything like this for this extended period of time.
Now that doesn’t mean everyone’s going to go out of business, there’ll be a redistribution. For example, if it was a restaurant in midtown Manhattan that relied a lot on people going from work, and these people are now working from home, perhaps their local restaurants or supermarket may see an uptick in business.
I think you’re going to see decisions slowing down and really digging a lot deeper into the underwriting, understanding what the business actually does, how it’s potentially affected.”
What should funders be doing to combat contagion?
“They should be testing a disaster recovery plan to work remotely.
But most importantly it’s really about everyone being healthy, helping their families and their employees. That’s first and foremost.”
Funding Metrics Announces New $100 Million Revolving Credit Facility
March 4, 2020
Bensalem, PA, March 4, 2020 – Funding Metrics, LLC (the “Company”) announced today the closing of a new $100 million revolving credit facility with a multi-billion dollar institutional credit fund. The Company will use the funds to expand and accelerate the growth of its small business funding platform. Brean Capital served as exclusive financial advisor to the Company on the transaction.
“We are very pleased to announce this new $100 million facility, which will allow us to significantly expand our ability to provide funding to the growing small business community across the United States,” said Co-Founder, Chairman and Chief Executive Officer, David Frascella. “This new facility represents an exciting milestone in our continued growth. Funding Metrics has tripled its origination volume since 2017, totaling over $500 million since company inception. I am very proud of the robust funding platform our team has created, the strong relationships we have developed with our independent sales organization partners, and especially the trust placed in us by our merchants. Funding Metrics has created a best of breed technology based platform allowing most funding offers to be sent in under three hours.”
Additional capital provided by the facility will allow Funding Metrics to capitalize on growth opportunities in 2020 and beyond as well as on the extensive infrastructure of people and technology it has built over the last few years. Mr. Frascella added, “We look forward to additional submissions from the ISO network and funding the next wave of small business leaders nationwide.”
About Funding Metrics
Funding Metrics is a leading data and analytics driven online provider of funding for small businesses throughout the United States. The Company uses proprietary risk models combined with real-time cash flow data to evaluate business performance and provides growth capital for entrepreneurs in a fast and efficient way through its two online brands, Lendini and QuickFix Capital. Since 2014, the Funding Metrics has provided over $500 million in funding to more than 9,500 small businesses in all 50 states. The Company is headquartered in Bensalem, PA, with additional offices in Jersey City, NJ and San Jose, Costa Rica.
For more information, please visit: www.fundingmetrics.com
For more information / questions / interview requests / media inquiries, please contact:
David Frascella
Email: info@fundingmetrics.com | Phone: 855-212-6610
Income Share Agreements – Operating Under Current Regulations and Preparing for the Future
February 28, 2020The Income Share Agreement (“ISA”) market is rapidly developing with more providers offering ISA programs to students and outside money moving into the space. However, the legal environment remains uncertain, and providers entering the ISA market must prepare themselves both to operate in the current environment and for potential changes.
Background – What is an Income Share Agreement?
ISA providers have set a modest goal: disrupt the $1.6 trillion-dollar student loan market that has wreaked havoc on a generation’s finances by aligning the interests of students and providers. In an ISA transaction, the student does not owe a specific amount of money and no interest is charged on a balance. Instead, the student agrees to pay a proportion of their future income above a specified threshold for a certain number of years. The provider of an ISA has an interest in the student consistently earning a high income for the duration of the contract—because the ISA provider generally does not get paid if the student fails to earn sufficient income.
Evolving Legal Environment
The current legal environment has not yet adapted to ISAs entering the market for funding education and associated expenses. No federal statute directly addresses ISAs and only one state—Illinois—has passed legislation contemplating ISAs. Even that legislation (the Student Loan Investment Act) merely permits a state investment fund to enter into ISAs and does not impact the private ISA market.
California and Washington have both considered legislation related to ISAs, but neither passed anything into law. Indiana’s legislature exempted certain “State educational institutions” from its Uniform Consumer Credit Code, including leading ISA provider Purdue University. However, Indiana did not expressly address ISAs under the UCCC.
No federal or state courts have published cases analyzing the treatment of ISAs under state or federal credit laws. But federal regulators appear to be aware of this issue. In a December 2019 discussion paper on ISAs released by the Federal Reserve Bank of Philadelphia, the authors acknowledged the uncertainty created by the lack of authoritative statements from courts and regulators, but did not weigh in on the legal issues.
Careful Consideration Required
When considering compliance with state and federal laws in this uncertain environment, participants must first assess which laws may apply. For state laws, if an educational institution is entering an ISA with a student, the institution must consider licensing, disclosures, and other restrictions applicable under state installment sales acts. Third-party providers must consider the application of lender licenses and associated disclosures and restrictions.
In either case, providers must consider the application of the Truth in Lending Act (“TILA”), the Equal Credit Opportunity Act (“ECOA”), the Credit Practices Rule, state laws governing the assignment of wages, and generally applicable state and federal laws, such as laws governing unfair and deceptive acts and practices and certain anti-discrimination laws.
Careful analysis of each statute, implementing regulation, and associated commentary provides some initial guidance. For example, TILA’s Regulation Z commentary excludes an “investment plan” where the party extending capital to the consumer risks the loss of capital advanced from the definition of “credit” under the Truth in Lending Act. 12 CFR 1026.2(14) cmt. 1(viii). However, participants must carefully consider with their counsel whether the Regulation Z exclusion is intended to only apply to traditional equity investments because they are not debt, or if it more broadly excludes investments that do not create an absolute obligation to pay.
Additionally, the definition of “credit” under ECOA in Regulation B not only lacks a similar comment, but also includes a comment stating that Regulation B “covers a wider range of credit transactions than Regulation Z.” 12 CFR 1002.2(j) cmt. 1. Although the Regulation B comment arguably only refers to ECOA’s coverage of commercial credit and credit regardless of the number of installments or inclusion of a finance charge, this is one example of how providers must carefully consider each potentially applicable law.
Merely assuming that laws applicable to credit do not apply to an ostensibly non-credit product without conducting an appropriate analysis creates serious regulatory risks.
Potential Federal Changes
In 2017, Senators Rubio and Young introduced the Student Success Act, and in 2019, Senators Warner and Coons joined them with a more robust ISA Student Protection Act of 2019 (the “Act”). The Act proposes a number of important steps. First, it proposes substantive consumer protection rules on ISAs and defines a “qualified ISA” to include only ISAs meeting those substantive requirements. Second, the Act would expressly preempt state laws affecting the validity of a qualified ISA, in addition to state usury, ability to pay, and licensing laws for qualified ISAs. Third, the Act would clarify the treatment of ISAs under federal credit, security, and tax laws, and empower the CFPB to promulgate certain guidance and regulations.
However, that Act has not become law and it is unclear if, or how, lawmakers will address the issue in the future. For example, in response to reports that the U.S. Department of Education was exploring offering ISAs, Senator Warren questioned whether ISAs were “in the best interest of students,” stating they could be “predatory and dangerous.”
Conclusion
The market for ISAs continues to grow, and it’s easy to see why. Given the growing student lending crisis, the presence of an alternative has significant potential. However, due to the current regulatory uncertainty, market participants must carefully weigh the legal risks.
Caleb Rosenberg is an associate in the Maryland office of Hudson Cook, LLP. Caleb can be reached at 410-782-2323 or by email at crosenberg@hudco.com.
United Capital Source Partners with Brex to Offer Deal on Card
February 21, 2020U
nited Capital Source has partnered with Brex on a deal that will see UCS customers receive bonuses upon sign-up for a Brex Corporate Card. Such rewards include 100,000 points in statement credit and waived card fees for life.
“We really wanted to start to offer business credit cards to our clientele. We believe that as we’re helping people solve their lending or funding issues, it’s also helpful to solve any problems that they face when running their day-to-day business,” UCS Founder and CEO Jared Weitz told AltFinanceDaily in a call. “The key point that we really love about Brex which we’re offering to our clients is a 60-day, no-interest float on expenses. And that’s really helpful for folks when you’re making weekly and bi-weekly payrolls, when you’re purchasing inventory, and when you have folks that pay you every 30 or 45 days.”
The news comes as companies from various backgrounds are beginning to offer debit, credit, and charge cards. Apple, BlueVine, and challenger banks such as N26 and Varo are now all offering cards of some kind to their customers.
In Weitz’s view, this is the next step for the industry. With tech becoming more and more ingrained in finance, the convergence between the two fields is inevitable and ultimately beneficial for brokers.
“They’re already doing it on the personal side. And I think that once these tech-enabled companies start to get business data on their clients’ trends in their business account, they’ll be able to offer other products to them as well. For me, as a broker, if someone says, ‘Hey, does that make you nervous?,’ honestly, I don’t believe so. Because I think it opens up the sources for me to send deals to … I’m not a lender, so I’m not competing against them. I’m someone that would send them business. So when I look at them, I say this is just a new potential partner for me, a new opportunity.”
Bitty Advance Has a New Major Partner
February 21, 2020Craig Hecker, who founded and sold Rapid Capital Funding, has acquired a stake in Bitty Advance. According to the press release, Hecker and Bitty Advance CEO Edward Siegel first met more than ten years ago when Siegel had just entered the merchant cash advance industry at Rapid Capital Funding.
Bitty has been on the move. The company has been a regular participant in the networking conferences that AltFinanceDaily puts on each year.
Siegel says of Hecker in the announcement that “I am thrilled to bring on Craig with all of his MCA experience and his creative thinking to help scale Bitty’s growth.”
The newly-made partners told AltFinanceDaily that they believe this deal will enable Bitty Advance to leap forward to the next level by adding technology to fund faster and create an industry changing awesome customer experience.
Liberis Secures $42 Million in Funding, Plans American Expansion
February 3, 2020
Liberis, the London-based small business finance provider, secured £32 million ($42 million) in capital late last month following a round of equity fundraising. The firm, which has funded businesses through cash advances since 2007, has now raised a total of over £150 million ($197 million) via debt and equity.
Having already entered Nordic markets, Liberis looks to use this funding to further expand into Europe as well as make their mark in America. Speaking to AltFinanceDaily, Liberis CEO Rob Straathof explained that the company would be working with its North American partner, Worldpay, to spread itself across all 50 states. Beyond Worldpay, Liberis is planning to create more partnerships with merchant acquirers, those payment platforms which serve merchants, or “SME champions,” as Straathof calls them.
Liberis will not be using brokers to provide cash advances to business owners in the States, the reason being that the company prefers to work with its affiliated partners. “We purely rely on our partners and integrating with our partners,” explained Straathof. “In the UK we still do brokers, but that’s kind of a legacy. It works very well for us and we have a great relationship with brokers. It’s a good channel for us, but we have no intention at this point to launch that in the US.”
The company will also use the funding to increase its staff by 30% in 2020, hiring around 50 people to bolster its 165-person workforce across their four offices in London, Dublin, Stockholm, and Denver.
Appellate Court Affirms Decision in Merchant Funding Services, LLC v Micromanos Corporation etc.
February 1, 2020On January 29th, 2020 the Appellate Division, 2nd Department, of the Supreme Court of New York, upheld the original decision issued in Merchant Funding Services, LLC v Micromanos, etc. et al.. The case concerns a Confession of Judgment (COJ) filed following Micromanos’ default on a merchant cash advance contract. The defendants sought to vacate the COJ on the basis that the underlying agreement was allegedly a criminally usurious loan but the original judge ruled in favor of the plaintiffs.
The case was so notable that AltFinanceDaily published a summary of the decision three years ago. Of particular interest is that the defendants not only lost but were accused by the judge of attempting to mislead the Court. Despite that, the defendants appealed.
The defendants have now lost again. The underlying case law they had relied on to support their arguments, Volunteer Pharmacy, was overturned the same day this decision was issued, leaving little room to wonder why the Appellate Division ruled accordingly.
