Kabbage, LendingPoint to Offer Real Time Funding Via Push Payments
April 9, 2018
Kabbage and LendingPoint each separately announced today that they will soon be able to get funds into their customers’ business accounts instantly and 24/7 via their pre-existing bank debit card. Hopes for this are not brand new. Last October, OnDeck announced a partnership with Ingo and Visa that would provide this convenience to borrowers, although this has not yet come to fruition, according to an OnDeck spokesperson. This is also not Kabbage’s first foray into real-time loan funding.
“We launched [a real-time loan product] through the debit network three years ago and we were really excited about the results,” said Kabbage co-founder Kathryn Petralia . “Our customers really liked it, [but] our challenge was that we couldn’t get broad enough coverage. Only a small percentage of our customers were able to use it…so we’re excited about our partnership with Ingo because it gives us the ability to broaden this to about 90 percent of our customers.”
Kabbage has entered into a relationship with Ingo and has plans to make this service available to customers this summer. One might wonder why, on a weekend, a merchant needs money and can’t wait until Monday?
“Our customers are always looking to expedite the process,” Petralia said, “not because they’re desperate for cash, but because they really are desperate for time, and they don’t want to spend a bunch of time reconciling their bank accounts [and] making sure the funds have arrived. This is a much cleaner way for them to get access to capital.”
Meanwhile, as part of an announcement by LendingPoint today, the company said that later this year it will be able to “instantly disburse loans to approved borrower accounts through their debit cards, 24/7/365.” This will be facilitated through the TabaPay platform, which also enables LendingPoint borrowers to use their debit card to make loan payments.
Accord Business Funding Makes New Marketing Hire
April 3, 2018
Houston-based Accord Business Funding recently hired Aldo Castro to lead its marketing efforts. His title is Vice President of Sales & Marketing.
“We are excited to have Aldo join our team,” Adam Beebe, co-founder of Accord Business Funding, told AltFinanceDaily. “Aldo comes to us with over twenty years of experience in business-to-business sales and marketing experience… [and he] will use his experience and feedback from the ISO community to help Accord find new ways of adding value to our partners’ businesses.”
Prior to Accord Business Funding, Castro worked as a strategic marketing consultant and co-founded two digital marketing agencies in Texas. Founded in 2013, Accord is a B paper funder with terms between four to eight months and merchants that include auto dealers and trucking and construction businesses, among others. The company of 20 employees is entirely driven by ISOs.
“Accord offers our ISO associates a unique combination of integrity, speed, and flexibility, helping them close their deals faster and easier,” Beebe said.
Funding a Deal Near the Holidays?
March 30, 2018
With the Easter / Passover holidays upon us, AltFinanceDaily wondered if closing deals is easier or harder during this period. Josh Feinberg, founder of Everlasting Capital, a funding company, told AltFinanceDaily that he thinks it’s easier to close a deal in the two weeks before a major holiday.
Why? Because he said that merchants are preparing to go on vacation and often want to get major decisions out of the way, while funders are looking to fund as much volume as possible.
At the same time, Feinberg said that application flow typically goes down the week before and after a major holiday as many people are out of their offices.
From the broker side, Anthony Frisone, founder of the ISO Nest Planner, told AltFinanceDaily that there’s no shortage of merchant demand for capital during the holiday time.
“I’m overloaded with deals,” he said. “It’s busier than usual, but I also have fewer employees because they’re taking off for vacation.”
Pearl Beta Funding Decision a Boon to MCAs, as Long as They’re True to Their True-ups
March 26, 2018While the recent Champion Auto Sales, LLC et al. v Pearl Beta Funding, LLC decision was a win for MCA companies because it determined at the appellate level that an MCA contract issued by Pearl Beta Funding to Champion Auto Sales “was not a usurious transaction,” many lawyers are saying that, more than anything, this decision has demonstrated the importance of having strong contracts with merchants.
So what made Pearl Beta Funding’s contract so strong in the eyes the judges?
“I would say that there were a variety of factors,” said Steven Berkovitch, who represented Pearl Beta Funding in this case along with lawyers from DLA Piper. “The first thing that the judges look for is if there’s a way for the merchant to modify their payments.”
This, in essence, is what is known as the “true-up” in an MCA contract. More specifically, Berkovitch said that the true-up is a contractual obligation on the part of an MCA funder to adjust the daily payment it receives from a merchant to more accurately reflect the percentage of receivables it is owed.
Pearl Beta Funding CEO Sol Lax takes this seriously. He told AltFinanceDaily: “Our front line servicing guys are well trained to respond when a merchant says ‘My deposits are down, my business is down, can I do something?’ They’re trained to know that the answer is ‘Yes. Send us some bank statements, we’ll look at it and we’ll adjust accordingly.’”
In this case, Berkovitch said that Champion Auto Sales did not use the true-up clause and did not request a payment modification when it was available to them.
“We have, literally, dozens upon dozens of cases where we’ve done the true-up,” Lax said. “So, it’s not just a contract. If [an MCA company] violates the true-up in practice and a merchant calls you and you say ‘hell no,’ that would be, not just a contractual violation, that would put a hole in your true-up clause.”
Many have remarked on how the decision of this case has already impacted the MCA industry. Berkovitch can see that himself. After the case was decided, he said that opposing attorneys have contacted him to withdraw their cases against his other MCA company clients.
Lax acknowledges, with modesty, what this decision means for the MCA industry at large: “You have a safe harbor now for the first time where, if you have a well-drafted contract, then you have active compliance [and] you’re pretty well off. Until this was settled in court, it was still up in the air.”
But Lax doesn’t take this victory for granted.
“You may still see challenges on specific [fact] patterns where a client can show that they had called, they asked for a true-up, and they were told ‘No true-up is available. You got to pay or we’re going to take all of your stuff,’” Lax said. “If they can show a pattern like that, then the MCA company is in trouble. They’ll have a hole blown right through their contract.”
Lawyers Weigh in on Champion Auto Sales, LLC v. Pearl Beta Funding, LLC
March 22, 2018In light of the recent Champion Auto Sales, LLC et al. v Pearl Beta Funding, LLC decision, which decided that the particular MCA contract at issue “was not a usurious transaction,” AltFinanceDaily spoke to a handful of lawyers, including the plaintiff’s lawyer, Amos Weinberg, to get their thoughts on the decision.
“The contract at issue in Champion Auto v. Pearl Beta Funding was really no different than the contracts reviewed over a hundred years ago by the United States Supreme Court, in Home Bond Co. v. McChesney, 239 U.S. 568 [1916], where our nation’s highest court agreed that “the transactions were really loans, with the accounts receivable transferred as collateral security,” and “[i]n so far as the contracts in question here use words fit for a contract of purchase they are mere shams and devices to cover loans of money at usurious rates of interest.” Like most patrons of funding providers, Champion Auto was a one-person company that needed immediate, overnight cash. Presiding Justice Rolando T. Acosta of the Appellate Division remarked, at the argument, that Champion was a “sophisticated” party that “knew what they were getting into.” It is therefore painfully obvious that even though the NYS Legislature criminalized and voided loans to corporations exceeding 25% interest, and even though all victims of loan sharking knew what they were getting into, the courts are loathe to be used as escape hatches for companies trying to get out of paying back loans.”
Giuliano, McDonnell & Perrone, LLP
“It’s an appellate ruling a lot of people have been waiting for. It handles the usury issue in passing, almost as if it goes without saying.”
Hudson Cook, LLP
“The court confirmed that under New York law, a properly structured MCA transaction is not a loan. But I want folks to focus on the ‘properly structured’ piece of that…The court’s decision did not indicate much. But it did say that based on the documentary evidence, which is the contract, that the transaction was not a loan. So it’s important for folks to understand that for [an MCA contract] not to be a loan, it needs to be properly described…this case really shows us how important the contract is.
This case does not mean that all MCA companies are all in the clear. What it means is that MCA companies with properly drafted contracts, and good practices and procedures, are not making loans.”
Harris Beach, PLLC
“First of all, it was a unanimous decision by the three justices in the first department. That doesn’t always happen, so that’s a good thing. I personally would have liked to have seen more discussion out of the appellate department, but the language that’s there happens to be great for the industry. The one thing that I would caution, though, is not to interpret that all merchant cash advances are outside of transactions that would be subject to usury because it really is dependent on the language of the agreement.
[The decision] is a great tool in the arsenal, but I don’t see it as the tool that is going to prevent challenges.”
Hudson Cook, LLP
“This is a very important decision because New York State has a high volume of merchant cash advance companies…so having favorable case law in New York is great for the industry.”
Mavrides, Moyal, Packman, Sadkin
“I am very pleased with the outcome. There are more cases [to be decided], but this is very beneficial. It’s a win for the industry and I hope to see other decisions go in the favor of the advance industry.”
Platzer, Swergold, Levine, Goldberg, Katz & Jaslow, LLP
“The impact of the Champion decision was direct. We represent several MCA clients and we have a number of cases where Amos Weinberg is representing the merchant. And in one of our cases where a motion to open up a default judgment is at issue, the judge’s law clerk directly emailed us and wants to conference the case based on the Champion Auto Sales decision.”
[Lafont also pointed out that even though it was a short decision, one of its two citations was to Feld v Apple Bank for Sav., which deals with overdraft protection and has interesting parallels to MCA.]
Platzer, Swergold, Levine, Goldberg, Katz & Jaslow, LLP
“Based on the email we just received from the court clerk today, this decision could expedite [future] litigation, and it could decrease certain attorney’s fees for a lot of MCA companies involved in this litigation.”
Fundbox Launches Fuse, A Funding Express Lane Designed to Increase SaaS ‘Stickiness’
January 22, 2018Fundbox announced the launch of Fuse, a new credit-integration service, on Monday morning. Via Fuse, SaaS business providers can now access Fundbox from within their workflows with just three lines of code.
“For small business owners, the process of applying for financing continues to be an arduous and demotivating journey that for many, does not end well,” the company stated in a release. “Since 2008 when the economic bubble burst, most banks made their small business underwriting processes more stringent in an attempt to mitigate potential risks from defaults.”
According to the Biz2Credit Small Business Lending Index, in December 2017 only 25.3% of small business loan applicants are being approved for funding, leaving the other 74.4% struggling to find alternative avenues through which to pay vendors and stay afloat.
Thus, not only are small business owners hampered, but SaaS providers that cater to these budding enterprises take a blow as well.
Citing a 2016 survey developed by the SaaS growth marketing agency, Cobloom, the average SaaS provider serving small businesses faces between 5-7% customer churn on an annual basis. A significant factor for this volatility is strains on customer’s cash flow.
Fundbox believes that they can alleviate this situation by offering easy access to its lending products via the SaaS services themselves.
“For our SaaS partners, we intentionally created a solution that was easy to integrate, increases service value and customer stickiness with just a few lines of code,” said Sebastian Rymarz, chief business officer at Fundbox via statement. “And for small business owners, we’ve ‘democratized’ access to credit and the underwriting process right from within your favorite business app or platform.”
“We’re excited to partner with Fundbox and to add Fuse to our service,” said Ryan Jackson, founder and CEO of Paid, via release. “Anyone who works closely with small business owners knows that time and cash flow are their two most important assets. With Fundbox Fuse, our customers get the convenience of accessing credit without having to leave our workflow and we get the additional service value and retention stickiness.”
6th Avenue Capital Secures $60 Million Commitment For Merchant Cash Advance Funding
November 2, 2017Highly Experienced Executive Team Offers Flexible Financing Options to Small Businesses
New York City – November 2, 2017 – 6th Avenue Capital, LLC (“6th Avenue Capital”), a leading provider of small business financing solutions, announced today its securement of a $60 million commitment from a large institutional investor. The investor made their commitment based on 6th Avenue Capital’s industry-leading underwriting, compliance standards and processes. 6th Avenue Capital will draw from this commitment to offer merchant cash advances to small businesses through its nationwide network of Independent Sales Organizations (“ISOs”) and other strategic partnerships, such as banks and small business associations.
6th Avenue Capital launched formal operations in 2016 to help finance small businesses that are often ineligible for funding due to traditional underwriting criteria. 6th Avenue Capital evaluates each application for funding individually and keeps the merchant’s short and long-term needs in mind including, most importantly, what they can afford. 6th Avenue Capital also understands that small businesses may need funding quickly. The company’s data-driven underwriting processes, expertise and technology can give the merchant secure and equitable approvals of qualified requests and funding within hours.
Leading the team, CEO Christine Chang oversees all strategic aspects of 6th Avenue Capital. She also serves as COO to sister company Nexlend Capital Management, LLC. She brings more than 20 years experience in institutional asset management, including alternative lending. Previously, Chang served as Chief Compliance Officer at Alternative Investment Management, LLC, COO at New York Private Bank & Trust and Vice President at Credit Suisse. She serves on the board of Blueprint Capital Advisors, LLC and Bottomless Closet, a not-for-profit empowering economic self-sufficiency in disadvantaged NYC women.
“Our mission at 6th Avenue Capital is to help small businesses grow, and we continue to expand our existing network of ISO and strategic partners to ensure these businesses have access to capital in hours,” said Chang. “Our leadership team of financial industry experts has extensive experience navigating multiple economic cycles. We know how to serve merchants and how to deliver quickly while meeting the highest operational standards for our investors.”
COO Darren Schulman joined the team in March 2017. Schulman is a 20-year veteran of the alternative finance and banking industries. He is responsible for oversight of 6th Avenue Capital’s origination, underwriting, operations and collections, as well as strategic initiatives. Schulman served previously as COO at Capify (formerly AmeriMerchant), a global small business financing company, and President and CFO at MRS Associates, a Business Process Outsourcing (BPO) company specializing in collections. In addition, Schulman was an Executive Vice President at MTB Bank.
“We form strong relationships with the merchant and consider it essential for our underwriters to speak to every merchant, on every deal, regardless of its size,” said Schulman. “We also make our underwriters available for discussions with ISOs whenever necessary. We are proud to offer competitive volume-based commissions, buyback rates and white label solutions.”
About 6th Avenue Capital, LLC
6th Avenue Capital is changing the small business financing landscape by offering a data-driven underwriting process and fast access to capital. The company employs a unique blend of industry experts and is committed to the highest operating standards, high touch merchant service, including a policy of direct merchant access to underwriters. 6th Avenue Capital is a sister company of Nexlend Capital Management, LLC, a fintech investment management firm founded in 2014 and focused on marketplace lending (consumer loans). For more information, visit www.6thavenuecapital.com.
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View From The C-Suite: Alternative Funding Execs Talk Shop, The Landscape, And The Future
October 30, 2017
Alternative funders have had a roller coaster 2017 with highs and lows that will likely be remembered as a high-stakes time for the industry, one in which the rubber met the road for many and the market landscape shifted for everyone from funders, to merchants to brokers.
Three C-Suite executives in the alternative funding space — Christine Chang, CEO of 6th Avenue Capital, Heather Francis, CEO of Elevate Funding and Torrie Inouye, National Funding president — spoke with AltFinanceDaily, offering their take on some of the industry shakeups, direction of the alt lending space and upcoming developments at their respective companies.
All three execs are embracing what appears to be shaping up as a bigger and better 2018 with plans on the horizon for new products, relationships and deals but also where there could be further shakeout as the shift in the industry landscape takes hold.
Industry Landscape
6th Avenue Capital, provides short-term funding to merchants that Chang describes as “high touch, high tech and fast.” The company is building an SEC RIA compliant infrastructure as Chang believes that MCA regulation will take place over the next several years. Chang said she is sympathetic to the banks and the onerous rules that they must follow, and whatever form the industry regulation eventually takes on, the company will be ready for.
A recent story in The Wall Street Journal points to community banks comprised of those with less than $10 billion in assets historically funding local merchants in what’s dubbed character-based lending. As the name suggests, the underwriting standard for the loans was tied to the character of the business owner, which the lender knew based on personal relationships in their own communities.
The financial crisis gave rise to greater regulation, driving a spike in that model and the rest is history. Small banks were forced to direct their resources toward risk management and compliance instead of adding more personnel to service loans. The WSJ quotes a small business lender that bears repeating: “When they created too big to fail, they also created too small to succeed.”
When that door closed, however, another one opened, creating the opportunity for alt lenders to service a niche that was getting left out in the cold.
“The alternative funding industry is here to stay. That’s good news for MCA and fintech in general. There’s a need for fast funding and there will continue to be a trend toward that,” said Chang.
Banks, meanwhile, have started coming to the fintech table to compete for deals. “We’re in the process of speaking to a number of banks, some quite large and some regional, that have expressed an interest. We think this is a great opportunity for them. The idea is that we’d help them to serve a population of clients that they would not otherwise be able to serve,” said Chang.
6th Avenue has had discussions about white labeling and customizing the platform for institutions. “We would run everything for them,” said Chang.
In addition to possible new banking relationships, 6th Avenue Capital, backed by a private family and institutional investors, will expand the business model to include more investors on its platform. “We are in discussions with a number of significant international investors. It’s in the works. We’re building an institutional infrastructure, so it was always contemplated,” she said.
Elevate Funding, whose is 100% referral-based and whose product suite is comprised of a trio of MCA solutions, is coming up on its three-year anniversary in December.
“When I created Elevate, I did it with the purpose of providing a product to high-risk merchants. That’s who we deal with. We’re not dealing with credit scores. There is a level of risk to who we work with. Elevate was created to provide a product that is going to fit their needs and also provide a product that doesn’t treat them like they’re high risk. That’s who we are,” said Francis.
Gainesville, FL-based Elevate recently hired Michael Gaura to spearhead a new MCA product that the company is rolling out in 2018. Francis held the details of the new funding product close to the vest, but she did offer her views on the direction of the MCA and alternative lending space.
“I see difficulty in the coming years, especially in 2018, for qualified lead flow. You have a lot of big banks that are getting into this industry. And that’s a lot of marketing dollars that you’re competing against.”
She points to JPMorgan Chase, American Express, Square and PayPal, saying they are “huge marketing dollar companies” with tremendous access to customers on their respective platforms.
“There’s going to be a shakeout of what can you reach, who can you reach, can you get them the first time? How do you engage them to where they only want to work with you and they’re not submitting 20 applications for every website they come across?”, Francis said.
San Diego, Calif.-based National Funding is a balance sheet lender whose primary product is loans, not MCAs. The broker factor has changed significantly for the lender in a very positive way this year. “We’re really seeing sizeable growth in our broker channel in 2017 and have designed a strong and consistent process for our broker clients” Inouye said. The leads have been driven by a variety of factors, not the least of which comes down to CAN Capital and Bizfi’s loss being National Funding’s gain.
“That’s a factor we can’t ignore. The broker community has rewarded us for being consistent and building those relationships and being a partner to them,” Inouye said. “We definitely saw an uptick in business when they left the space. I can say we’ve continually experienced sizeable growth in our broker channel year over year but 2017 was beyond what we had expected. It surpassed other years.”
Incidentally, National Funding was one of the earliest alt funders on the scene along with CAN Capital in the 1990s. CAN’s fate started unraveling about this time a year ago.
“It’s not positive when you see that happen in the industry. However, we are really focused on what we’re doing and the decisions we’re making internally. I think that’s why we’ve consistently had profitable growth over the years. We’ve stayed true to our underwriting principles and the market seems to have rewarded us. We were consistent and not erratic. Brokers know they can rely on us and feel confident that we would quickly fund their deal once we issued an approval,” said Inouye.
The Broker Effect
Elevate, a balance sheet funder, relies on outside brokers and referrals for deals. “I don’t find it a disadvantage for us not having an internal sales team. A lot of companies in this space have the ability for a chief marketing officer who focuses entirely on leads. Elevate isn’t there yet. Will we be there in five years? Maybe. Marketing can change by that time,” Francis said.
6th Avenue Capital welcomes relationships with brokers as well. “We have an in-house business development team that works with brokers. 6th Avenue Capital is also considering direct sales in niche strategies in its future,” said Chang.
6th Avenue Capital has a starter program in which there are no guarantees but considers businesses that have been in existence for less than a year and businesses with credit scores of 500 or more. Plus, they’re willing to do consolidations up to two advances.
In addition, 6th Avenue Capital is open to offering financing to brokers. “It’s really good in that there is an alignment of interests and allows brokers to participate in the deals they put forth. If they think the merchant is credit worthy and a terrific opportunity, they participate. Everyone has skin in the game and interests are aligned,” Chang said.
Technology
While technology is at the core of fintech, all three of the companies take a hybrid approach when it comes to credit underwriting comprised of a tech platform and the human touch, which perhaps keeps character-based lending alive in some form.
With respect to fintech, “6th Avenue Capital’s philosophy is that technology is a tool to supplement human underwriting. We use technology to detect fraud, manage workload processes and manage risk. We do not use technology to make our final decisions,” said Chang.
Specifically, 6th Avenue Capital benefits from research, artificial intelligence and predictive technology of its sister company Nexlend Capital. 6th Avenue Capital has customized Nexlend’s consumer lending algorithmic intellectual property, which uses machine learning and credit analysis with high speed execution to make better and faster decisions.
Elevate also takes a dual-approach to its underwriting process. “I believe in a hybrid method. You have to have someone looking at it, to have eyes on the paper at some point in the process. This doesn’t mean a computer system can’t help to weed out what might not meet the criteria, but I do believe there needs to be a person reviewing the files,” Francis said.
National Funding was started as an equipment leasing company. “We apply some principles we learned as a leasing company and take into account all of the attributes that go into that business in addition to FICO and cash flow,” Inouye said.
Automation is an area of technology that they continue to look to for innovation and process efficiencies. “We do serve our customers online, but we also provide a human contact as well. We deliver a loan experience that builds trust and confidence with customers. We try to deliver on what our customers want in the most efficient way,” said National Funding’s Inouye.
National Funding continues to look at construction deals and accepts them as a niche in their portfolio, which Inouye said differentiates the company. “It allows us to be more flexible and comfortable with certain industries that other lenders might stay away from.”
Corporate Culture
2017 has been a roller coaster year for fintech including alt funders. While there have been plenty of bright spots, there was also some fallout that left veteran players scrambling to salvage either their reputation, status as a funder or both.
SoFi has been at the center of controversies that resulted in the Mike Cagney leaving his chairman post with plans to step down as CEO. Most recently, the lender has removed its application for a bank charter, according to reports.
We asked Elevate’s Francis about it. “SoFi is a very big company. They’re to the level where the CEO has people to answer to. They have a checks and balances system they need to go through,” said Francis. “It worked, and they removed him.”
Francis maintains an open-door policy with her employees, and she says all you can do is focus on your house and keep your house in order. “My door is always open. That’s our office policy. They use that quite frequently; it’s a catch 22,” she said with a laugh.
Fintech and Diversity
Something else that all three executives have in common is that they are all women in top roles in fintech, an industry that isn’t known for its diversity.
6th Avenue’s Chang’s career includes working at a large institutional bank for six years. Out of 200 professionals, only four of them in her group were women. “At the end of the day, performance is the best differentiator. If you perform well, it presents unique opportunities. At 6th Avenue Capital, diversity is embraced. Our underlying merchants aren’t just one gender or color. Diversity helps us understand the needs of small businesses better, so we can provide fast and customized funding quickly,” she said.
