New York State Legislature Passes Law That Requires APR Disclosure On Small Business Finance Contracts (Even If They’re Not Loans)
July 24, 2020
Factoring companies and merchant cash advance providers may be in for a rude awakening in New York. The legislature there, in a matter of days, has rammed through a new law that requires APRs and other uniform disclosures be presented on commercial finance contracts… even if the agreements are not loans and even if one cannot be mathematically ascertained.
The law also makes New York’s Department of Financial Services (DFS) the overseer and regulatory authority of all such finance agreements. DFS can impose penalties for violations of the law, the language says.
The bill was passed through so quickly that unusual jargon remained in the final version, increasing the likelihood that there will be confusion during the roll-out. One such issue raised is the requirement that a capital provider disclose whether or not there is any “double dipping” going on in the transaction. The term led to a rather interesting debate on the Senate Floor where Senator George Borrello expounded that double dipping might be well understood at a party where potato chips are available but that it did not formally exist in finance and made little sense to have it written into law.
Senator Kevin Thomas, the senate sponsor of the bill, admitted that there was opposition to the “technicalities” of it by some industry groups like the Small Business Finance Association and that PayPal was one such particular company that had opposed it on that basis. Senator Borrello raised the concern that a similar law had already been passed in California and that even with all of their best minds, the state regulatory authorities had been unable to come up with a mutually agreed upon way to calculate APR for products in which there is no absolute time-frame. Thomas, acknowledging that, hoped that DFS would be able to come up with their own math.
APR as defined under Federal “Regulation Z”, which the New York law points to for its definition, does not permit any room for imprecision. The issue calls to mind a consent order that an online consumer lender (LendUp) entered into with the Consumer Financial Protection Bureau in 2016 after the agency accused the lender of understating its APR by only 1/10th of 1%. The penalty to LendUp was $1.8 million.
Providers of small business loans, MCAs, factoring and other types of commercial financing in New York would probably be well advised to consult an attorney for a legal analysis and plan of action for compliance with this law. The governor still needs to sign the bill and New York’s DFS still has to prepare for its new oversight role.
Passage of the law was celebrated by Funding Circle on social media and retweeted by Assemblyman Ken Zebrowski who sponsored the bill. The Responsible Business Lending Coalition simultaneously published a statement.
Bitty Advance Has Been Acquired By Industry Veteran Craig Hecker
July 23, 2020
There’s new management over at Bitty Advance. The Fort Lauderdale-based funding company has been acquired by long-time industry veteran Craig Hecker. Hecker, who years ago founded, grew, and sold Rapid Capital Funding had originally acquired a stake in Bitty earlier this year, but in the following months purchased the remainder of the business from founders Eddie Siegel and Lenny Duvdivani.
Hecker told AltFinanceDaily that under his management Bitty has committed capital that will allow the business to fund up to $10 million per month.
“I’m very excited to take my industry experience and knowledge and apply it to this segment of the MCA space,” he says.
As part of the takeover, Hecker says that he has “re-assembled his dream team of technologists and ops” that have been part of his inner-circle for nearly a decade and “were critical in building out the platform” that had made Rapid Capital Funding successful.
Bitty has historically focused on micro-advances and the company plans to really scale up its efforts in the $2,500 – $12,500 small merchant market segment with the aid of automated technology. In addition to this, Bitty has launched a new sales partner portal for ISOs. “That way [ISOs] will always know what’s going on with merchant applications,” hecker said.
The Aftermath: What Industry Experts Had to Say About The Future Alignment of People and Data
July 20, 2020
Like never before, the ways in which people and data are employed are overlapping more in a post-covid economy. Nearly three months of slow-down and, in some cases, complete economic shutdown have forced brokers and funders alike to view businesses differently than before. New documents, metrics, and terms are being incorporated into underwriting with the belief that it will provide a much more comprehensive picture of each business applying for funding.
Broker Fair Virtual took the chance to explore these new perspectives in The Aftermath, a panel featuring Moshe Kazimirsky, VP of Strategic Partnerships and Business Development at Become; Heather Francis, CEO of Elevate Funding; and David Snitkof, Head of Analytics at Ocrolus. Here, the industry experts discussed what the future of data and people may look like, what the new things that funders are looking out for are, and how the coronavirus has changed consumer and merchant behavior.
First up was Heather Francis, who gave a run down of how Elevate has adapted to the constantly shifting environment created by covid-19. “There were slim pickings on what we could fund,” Francis noted of the early lockdown period. Explaining that many businesses didn’t fit their criteria in the early days of lockdown, Elevate began the process of including new metrics and lenses through which to ascertain if businesses were financially viable.
National, state, and local restrictions became a daily check-in, rather than monthly; with one person being assigned to cover changes in local and even county regulations. As well as this, Francis explained that the company shifted its focus from underwriting the business owner’s activity to underwriting the consumers’ activity. This meant that foot traffic was constantly reviewed via FourSquare, trends that showed which industries were seeing upticks and downturns were monitored, and what customers in varying geographies were comfortable with was gauged.
“There are some areas in our country that were not heavily impacted,” Francis explained, commenting on the discrepancies between locations, particularly for bars and restaurants. “I know some of us have our optics on what’s going on in our daily lives, and a lot of people in our space are located in New York or California, and these were the very heavily regulated areas where everything was shut down and there was not much to do. Here in Florida, it was easier, with open-seating dining.”
David Snitkof echoed Francis’s points, saying that “the old way of businesses underwriting credit is no longer sufficient … If you were to only look at people’s repayment histories, their credit profiles, and things like that, you wouldn’t get all the data you need to make the right decision. Generally there’s this idea that the past is prologue and the greatest predictor of future results is past behavior, and this type of pandemic makes that no longer the case … we need to think beyond the traditional data sets that people have used to underwrite credit.”
According to Snitkof, the old models for underwriting and funding have been overturned, with funders adhering to three principals going forward as they chart new methods: more data, more time, more detail. This means incorporating more data and analytics than before, pushing for more data-driven strategies; requesting information and data from merchants that cover longer periods of time, with the hope of gaining further insight into the pattern of the business; and upping the thoroughness with which each merchant is scrutinized, recording more information that is unique to their industry, location, and business management.
“Lenders will realize that in order to make a credit decision, we need to have access to very deep, detailed, and wide time-framed data of our customers; and we need to be able to process it in an automated and efficient way,” Snitkof asserted.
Still, while it looks like data is due to play a larger role in the future, Heather Francis took care to mention that important data is currently missing from their metrics. Credit and delinquency reporting are on hold, just as rent is paused for many tenants; meaning that in two or three months, many funders could be in for a surprise when they realize their merchant is having trouble.
Speaking on the Paycheck Protection Program as well as the Economic Injury Disaster Loan, both Snitkof and Francis expressed that while it is good to see deposits for the government programs, questions must be asked regarding them. They can’t be viewed as revenue, since they do not reflect a business’s ability to generate revenue, said Snitkof, but rather they offer a chance to view how a company manages its cash-flow, with how they spread out PPP and EIDL funds being a key insight.
Looking forward, the panelists noted that the experiences of economic shutdown; PPP; EIDL; and how many business owners’ banks supported, or did not support, them could lead to a shift in how non-banks are viewed.
“It’s definitely a time and place for us to really highlight how our industry is placed to assist small businesses,” Francis stated. “We should really take this opportunity to expand on what we can do and how we can help. I think it’s our moment to shine because a lot of banks have pulled back on what they’re able to do in this time.”
This pulling back by banks became clear during the peak of the PPP application period, when many business owners complained of a lack of or poor communication between themselves and the bank they applied to. Highlighting the importance of the customer experience, Snitkof pointed out that this aspect of alternative finance may only become more important as time goes on.
“We have this golden age of customer service. Customers are going to demand good funding, on the right terms, with full transparency, with good speed of decisioning, with a good relationship, and if they can get that from someone who is not a bank, but is an alternative finance provider, then that’s a great funding scenario for them.”
More generally though, the panel ended on a note of ambiguity over the future, with the speakers agreeing that what comes next will be uncertain and challenging, as Francis reminded the audience of what 2020 has in store: a presidential election and a possible second wave of the novel coronavirus.
But there may also be opportunity for those who are there to take it, according to Snitkof, who finished off by saying that “the silver lining of what we’ve just been through as a country, as a world, as an industry, is that all those things that were good enough, they were on pause. So it’s given people the time and space to reimagine what they could do and actually look at the capabilities that we’ve available to us and say ‘maybe we can provide a great personalized customer experience to every small business and customer out there. Maybe we can be more automated and data-driven in our decisions. Maybe we can actually extend better terms on financing to people because we’re able to determine risk better, and optimize our market spend and cost of capital better.’ One of the good things about a disruption is it takes away a lot of the stuff that was good enough; a lot of those sacred cows are now ready to be disrupted and maybe in a few years we’ll see rapid innovation along those lines.”
New York State Legislators Resume Push of Commercial Finance Disclosure Bill
July 17, 2020
A bill (A10118A / S5470B) intended to create uniform disclosures for comparison purposes while also placing control of the commercial finance industry under the purview of the superintendent of the New York Department of Financial Services, is moving forward.
The March 2020 initiative was picked back up this week by members of the Assembly where it passed the banking committee and codes committee on a unanimous and bipartisan basis.
“When enacted, this bill will become the strongest commercial lending disclosure law in the country that covers all commercial financing products,” wrote Ryan Metcalf, Head of US Regulatory Affairs and Social Impact at Funding Circle, on LinkedIn. “It includes strong provisions that ensures enforcement and eliminates loopholes that will prevent gaming & abuse, & requires APR to be disclosed for all products.”
Metcalf further wrote that they and the Responsible Business Lending Coalition (RBLC) have been working diligently with NY state legislators for the last year or so to craft this bill. Among RBLC’s membership is Fundera, Nav, Lendistry, LendingClub and about 4 dozen other companies.
Funding Circle US Lays Off 120 Employees
July 9, 2020Funding Circle US laid off 120 employees yesterday, according to a post shared by Ryan Metcalf, Head of U.S. Regulatory Affairs and Social Impact.
Reuters reported that the company will also centralize its technology development in the UK rather than have a separate US team going forward.
The US operation had largely been focusing on PPP lending and SBA 7(a) loans since the shutdowns occurred.
The announcement coincided with its UK business being approved to participate in the Bounce Back Loan Scheme.
Every Business That Got $150,000 or More in PPP Funds (The List)
July 7, 2020In the interest of transparency, the SBA dumped a list of more than 660,000 businesses that got $150,000 or more in PPP funding.
You can download the entire thing right here.
The Commercial Finance Coalition Applauds Actions by the Federal Trade Commission and New York State to Thwart Bad Actors in Business Lending
June 11, 2020
The Federal Trade Commission (FTC) and the office of New York State Attorney General Letitia James have filed formal actions against two small business financing companies for allegedly using egregious and deceptive tactics to seize assets from small businesses, non-profits, religious organizations, and medical offices.
“The Commercial Finance Coalition whole-heartedly applauds the efforts of the FTC and Attorney General James. As a coalition of responsible financial services companies committed to funding small businesses, the CFC believes there should be zero tolerance for bad actors and deceptive practices in our industry,” said Executive Director Dan Gans.
Gans added, “Hopefully this will serve as a warning to all companies in the business finance space to serve merchants through best practices centered on respect and integrity in compliance with state and federal law.”
The CFC is a not-for-profit alliance of innovative financial technology companies that are working together to deploy capital to help small and mid sized businesses grow.
Press Release
Contact
Dan Gans
626-755-6545
Release Date
June 11, 2020
Ireland’s Alternative Finance Industry and the Coronavirus
May 18, 2020
As the effects of the coronavirus continue to slow down the American economy, around the world, many countries remain in lockdown, with their businesses having been halted. Be it to the north, south, east, or west, of the United States, the results are the same: money has stopped flowing. As such, we took the opportunity to follow up with some of the businesses that featured in our coverage of alternative finance in Ireland last Fall, hoping to see what differed and what was the same in their responses to the pandemic.
Despite differing in size and range of variety when compared to their North American counterparts, the Irish alternative finance and fintech industries have largely felt the same impacts from covid-19. Certain funders have stopped operations, others have become very cautious, and just like here, some businesses have turned to the government for help.
LEO, or Local Enterprise Offices, is an advisory network for small and medium-sized businesses, which provide guidance as well as offer capital. The Irish government has pointed to these as the point of contact for small businesses owners, with LEO providing microfinance loans of up €50,000. This figure being upped from the pre-coronavirus maximum of €25,000.
Rupert Hogan, the Managing Director of brokering company BusinessLoans.ie, explained that some businesses would be better going with LEO over banks and even some non-banks. Noting that non-bank lenders can’t compete with the rates offered by LEO and, just like in the US, banks can’t act with the speed that these business owners need.
Hogan, who describes the current situation as “The Great Lockdown,” said that banks “aren’t too helpful, even in the good times,” due to the high rejection rates that SMEs experience when looking for loans. In regards to merchant cash advances, he’s expecting, when the MCA companies reopen, that they’ll be funding at reduced rates, some doing as much as 50% less than their pre-coronavirus amounts.
Jaime Heaslip, Head of Brand Marketing at the MCA company Flender, explained that before the virus, the company was experiencing a period of productivity, with lending activity and amounts deposited being up from previous years. And despite the virus disrupting commerce, the former international rugby player noted that business owners are still coming to Flender for funds.
“We provide flexibility for people, there’s a lot of people coming to us to get contingency funds together,” he said over a phone call, commenting that as well as this, many businesses are looking for financing to move their operations online. “We’re trying to help SMEs get through this and provide as much help as possible.”
Beyond merchant cash advances, business continues to run, says Spark Crowdfunding’s Chris Burge. Being an investment platform, Spark is still active with businesses looking to get off the ground.
“We’ve actually found that we’ve still got a large amount of inquiries coming through,” the CEO and Co-Founder said. “Our pipeline of companies wanting to go onto the platform is very strong, and we’ve been engaging with them all and they’re very keen. They all need money, which, of course, hasn’t changed from before there was a crisis. And they still are needing money, they need that to expand as opposed to survive.”
When asked about changes made because of covid-19, Burge explained that their investor evenings have been disrupted. Previously an opportunity for the investors and investees on the digital platform to meet up personally and pitch each other, these 100-person gatherings are no longer an option. Instead, virtual webinars and assemblies are what Spark has started using to keep up communication between parties.
And on the subject of fundraising, Trezeo’s Garrett Cassidy said that it has become a nightmare under the pandemic. Disrupted communication channels and the inability to pitch to someone in the same room as you have been hurdles, but besides that, Cassidy assured me that Trezeo is still going strong.
Offering payment structures and benefit bundles to freelancers and the self-employed, Trezeo has seen some of its customer base drop off as unemployment sky-rocketed in the UK, its prime market. Despite this, as more and more people are beginning to go back to work, Cassidy says numbers are rising.
“Now we’re starting to see earnings pick back up again, some of them were the ones who were off work who are now coming back to work. So it’s been interesting watching that but the reality is that they’re also scared. They’re out working every day delivering parcels or food, depending on which, and just working really hard. It’s the most important ones who are paid the least and that have the least protection.”
Looking ahead, Trezeo has been working with the UK’s Labour Exchange to establish a new program that would see the creation of channels to help pre-qualify workers for certain positions. These workers would be pooled, and employers would be able to choose from them, streamlining the hiring process for both sides.
“They need money in their pockets, somehow, quickly,” Cassidy said of workers, whether that be by returning to work safely, or through some government assistance program, the CEO is adamant that people need to stay solvent.
Altogether, Ireland’s alternative finance industry, like others the world over, has been hit hard by the coronavirus’s economic effects. With the country’s phased lifting of the lockdown being plotted out over the course of the summer, the island nation may not see as quick a return to commerce as certain American states, but its fintechs and non-banks hope to stick around, by hook or by crook, as the Irish say, by any means possible.
