CFPB HQ Temporarily Closed, Operations Frozen
February 10, 2025The CFPB’s headquarters in Washington DC will be closed this week as the agency undergoes an audit from the Department of Government Efficiency. The audit coincides with the arrival of yet another new Acting Director, Russell Vought, who is also serving officially as the Director of OMB. At the CFPB this weekend, Vought told employees not to “approve or issue any proposed or final rules or formal or informal guidance” and to “suspend the effective dates of all final rules that have been issued or published but that have not yet become effective.” He also told the Federal Reserve that the agency does not need funding at this time due to having too much on hand already.
Pursuant to the Consumer Financial Protection Act, I have notified the Federal Reserve that CFPB will not be taking its next draw of unappropriated funding because it is not "reasonably necessary" to carry out its duties. The Bureau's current balance of $711.6 million is in fact…
— Russ Vought (@russvought) February 9, 2025
While he has ordered all final rules that have been issued or published but not yet effective be suspended, some legal observers have indicated that the small business data collection process overseen by the CFPB (pursuant to Section 1071 of Dodd-Frank) that is scheduled to start on July 18 is technically bound by rules already in effect and that the deadline is merely the start date for compliance. However, that interpretation may be at odds with the spirit and intent of the suspension.
The Independent Community Bankers Association (ICBA) welcomed Vought into the role. “We look forward to working closely with Director Vought, the Trump administration, and the 119th Congress to implement needed CFPB regulatory reforms to help community banks meet the needs of local communities,” they said. The statement included a link in which they call for the small business lending data collection rules to be repealed.
“Intrusive data collection will compromise the privacy of small business applicants, effectively ‘commoditize’ small business lending, and increase the cost of credit,” they say. “ICBA urges the 119th Congress to promptly repeal or substantially revise Section 1071 to limit the implementation of a destructive rule.”
Are You Calculating Defaults Wrong?
January 22, 2025David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies.To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.
As we dive into tax season, it’s crucial for those involved in the merchant cash advance (MCA) industry to have a solid grasp of how to account for defaults. The way defaults are measured can significantly influence financial reporting and tax obligations, so understanding the different perspectives is essential.
There are several ways to evaluate defaults in the MCA industry, each offering different benefits depending on the context.
One common approach is the Right-to-Receive (RTR) perspective, which looks at the difference between the total payback amount agreed upon in a deal and what has actually been repaid.
For example, if a business secures $100,000 with a payback obligation of $150,000, and it repays $135,000, then there’s a remaining $15,000 that constitutes a default—a 10% shortfall from what was expected. This method is excellent for highlighting the gap between expected and actual returns, making it a valuable tool for financial modeling and long-term forecasting.
However, while the RTR method is strong for assessing contractual obligations, it can sometimes feel a bit too rigid. It often overlooks the real-world dynamics of cash flow and the impact of fees, which can give a skewed picture of a deal’s financial health.
Another method is the cash perspective. The approach simplifies things by focusing on whether the initial funding amount has been recovered. Using the same example, if the client repays $135,000, there’s no default recorded since the principal has been recovered. But if only $75,000 is paid back, that’s a 25% default based on the original funding. This approach is particularly handy for tax reporting because it zeroes in on principal recovery without complicating the picture with profit margins.
While straightforward, the cash perspective has its drawbacks. It tends to gloss over important details like origination fees and the overall financial implications of the repayment agreement, which can lead to an incomplete understanding of the deal.
Next, we have the wire perspective, which considers the actual amount transferred to the client after any deductions, such as origination fees. For instance, if a client gets $100,000 but pays a 10% origination fee, they effectively receive $90,000. If they then repay $75,000, the default is calculated based on the wired amount, leading to a 16.66% default rate. This perspective is particularly useful in syndication agreements, where understanding profitability post-fees is crucial.
Yet, like the cash perspective, the wire approach may miss the broader financial picture, focusing too narrowly on fees without accounting for total contractual expectations.
Each of these methods has strengths and weaknesses, but a comprehensive understanding of defaults requires a more detailed approach.
The percentage of payback perspective is the solution, calculating defaults based on the total percentage of the expected payback received.
In a scenario where the RTR is $150,000 and $135,000 is repaid, the default is 10% of the total payback amount. This method accounts for historical trends and repayment behaviors, offering valuable insights for portfolio management and financial forecasting. It allows us to estimate defaults based on historic defaults and post a percentage of the payback as the payments come as defaults. By incorporating both RTR obligations and cash flow realities, it balances the limitations of other methods.
For tax purposes, the cash perspective is practical, recognizing defaults as the shortfall between the funded amount and repayments. However, it oversimplifies the complexities of MCA financing by neglecting origination fees and RTR contracts. Similarly, the RTR perspective, while excellent for identifying contractual gaps, can be too rigid for broader financial analyses, as it does not consider upfront deductions or actual cash flow timing.
The percentage of payback perspective addresses these shortcomings, making it the most effective method for evaluating defaults across all scenarios.
A significant advantage of the percentage of payback perspective is its flexibility for financial projections.
Businesses can use past repayment data to estimate default rates across different portfolios, helping them align with long-term profitability goals. This is especially important in the merchant cash advance industry, where repayment patterns can vary widely. It also works well for situations involving origination fees or syndication agreements, ensuring those fees are factored into default calculations. By doing so, it avoids the distortions seen in cash- or RTR-focused analyses and provides clearer reporting for syndication partners on how their investments are performing. Although this approach requires more effort, its ability to offer accurate and nuanced insights makes it essential for MCA companies in today’s complex financial landscape.
This tax season, understand your accounting options, and leverage them to help you kick off an amazing 2025.
Maxim Commercial Capital Reports 25% Growth in 2024
January 21, 2025LOS ANGELES, CALIF. (Jan. 21, 2025) – Maxim Commercial Capital (“Maxim”) announced impressive growth during 2024, continuing a multi-year trend. The hard asset secured lender reported a 25% increase in funded deals during the year as compared to 2023. Maxim is a national provider of loans and leases from $10,000 to $3 million collateralized by class 6 and 8 trucks, trailers, heavy equipment, and real estate.
“Our team stepped up to fill an increasing capital void for small businesses in 2024,” noted Michael Kianmahd, Maxim’s CEO. “Our consistent delivery and flexible terms have earned Maxim a strong reputation over the past 16 years among our customers and referral partners.”
Founded during the 2008 financial crisis, the privately-owned lender supports the needs of small and mid-sized businesses, including startups and those with challenged credit, during all types of economic landscapes. Keys to Maxim’s success include its dedication to customer success, providing value to its referral network of equipment vendors and finance brokers, and providing excellent customer service through all cycles and markets.
Class 8 truck financings during the year comprised loans and leases for experienced and startup owner operators in 41 states across the U.S. New borrowers included: an experienced owner operator with challenged credit who purchased a 2019 Kenworth T680 with 539K miles for $38,135 with 22% down and the help of a co-applicant; a startup owner operator with a limited credit history and 642 FICO who purchased a 2019 Kenworth T680 with 472K miles for $39,248 with 25% down; and, a startup owner operator with bad credit who purchased a 2020 Peterbilt 579 with 424K miles for $55,047 with 27% down.
Notable heavy equipment financings during the year included 100% purchase financing for a small car hauling business to buy a 2020 Freightliner M2 4-Car Carrier for $105,000. Maxim secured a second lien on the borrowers’ home as additional collateral in lieu of a down payment, helping the company preserve cash. A startup entrepreneur purchased a 2015 Freightliner 114SD, his first dump truck, for 36% down on the $109,000 invoice; and a subcontractor with 35 years of experience replaced an older compact track loader by leasing a 2023 New Holland C337 priced at $83,760 from Maxim.
Maxim also provided essential working capital for small businesses through structured real estate-secured, cash-out financings. New borrowers funded in 2024 include the owner of a virtual platform offering on-demand exercise and meditation classes who borrowed $200,000 in growth capital secured by a second lien position on her home; and, experienced restaurateurs in New York City who borrowed $410,000, secured by a 1st lien against a family residence, to pay off MCA debt held by five lenders, make property improvements, and expand the business’s catering services.
Maxim continues to expand and improve its infrastructure to support its growth. The company currently is seeking to hire an accounting manager and senior accountant. Please visit https://www.maximcc.com/our-company/careers/ for job descriptions and to apply.
About Maxim Commercial Capital
Maxim Commercial Capital helps small and mid-sized business owners nationwide by providing loans and leases (“financing”) from $10,000 to $3 million secured by trucks, trailers, heavy equipment, and real estate. It funds equipment purchase financings and leases, working capital, and debt consolidations. Maxim’s more creative financing structures leverage equity in real estate and owned heavy equipment to facilitate growth and preserve customers’ cash. As a leading provider of transportation equipment financing, Maxim supports startup and experienced owner-operators and non-CDL small fleet owners by funding loans and leases for class 8 and class 6 trucks, trailers, and reefers. Learn more at www.maximcc.com or by calling 877-776-2946.
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Cloudsquare Broker MCA CRM now Integrated with Bitty Advance for API Submissions
January 13, 2025Los Angeles, CA – January 13, 2025 – Cloudsquare, the leading end-to-end lending platform powered by Salesforce, is excited to introduce the latest Cloudsquare Broker Lender API Integration, now with Bitty Advance—a trusted provider of fast business funding solutions. This integration transforms how MCA brokers deliver faster submissions, improve accuracy, and elevate customer satisfaction.
Cloudsquare Broker is the top CRM for MCA brokers, built to simplify and optimize lending workflows. With the addition of Bitty Advance, brokers can leverage advanced tools to automate applications, streamline operations, and close deals more efficiently.
Key Features of the Cloudsquare Broker + Bitty Advance Integration
- API Submission: Automate application submissions through Bitty Advance’s API, eliminating manual entry and reducing errors.
- Bulk File Upload: Manage high volumes of submissions effortlessly with bulk document uploads, saving time and improving team efficiency.
- Offer Generation: Generate tailored funding offers for merchants instantly, leveraging Bitty Advance’s advanced capabilities.
- Instant Approval Offers: Provide qualified merchants with same-day approvals to boost customer satisfaction and increase closure rates.
Effortless Scaling for MCA Brokers
With the Cloudsquare Broker Lender API Integration, brokers can scale their operations effortlessly while staying ahead in the competitive MCA industry. Whether handling a single application or managing multiple deals, the Cloudsquare Broker platform ensures smooth workflows and dependable performance. For more information about the Bitty Advance Integration, please visit Cloudsquare
About Cloudsquare
Cloudsquare is the leading end-to-end lending platform, uniquely powered by Salesforce to deliver unparalleled flexibility and innovation for lenders and brokers. With a commitment to optimizing lending processes through cutting-edge technology, Cloudsquare provides robust, scalable solutions that empower clients to achieve greater efficiency and growth. Celebrated by industry leaders, Cloudsquare has earned a place on the Inc. 5000 list as one of America’s fastest-growing companies and is consistently rated a top service provider on platforms like Salesforce AppExchange, G2, Clutch, and Manifest.
For media inquiries, please contact:
Cloudsquare Marketing Email: marketing@cloudsquare.io
Legal Complexities in the Revenue-Based Financing Industry: An Analysis of Recent Court Cases
January 6, 2025Jeffrey S. Paige is the General Counsel of CFG Merchant Solutions. Visit: https://cfgmerchantsolutions.com
Navigating the intricate legal landscape of the revenue-based financing industry has become increasingly complex, with recent court cases providing profound insights into the sector’s regulatory dynamics. Amidst legislative shifts, litigation between funders and merchants, and public enforcement actions, three prominent court cases have recently emerged, each offering further guidance into the nuanced legal dynamics governing this innovative sector.
SBFA vs. DFPI: Constitutional Challenges to California’s Regulatory Framework
In the Small Business Finance Association (SBFA) vs. California Department of Financial Protection and Innovation (DFPI), 9th Cir., Case No. 24-50, SBFA challenged the constitutional validity and federal preemption of California’s Commercial Financing Disclosure Law. Central to SBFA’s stance is the contention that the state’s regulatory framework infringes upon the First Amendment rights of its members. SBFA asserts that the regulations compel its members to disseminate inaccurate disclosures to customers, while simultaneously prohibiting any communication that could rectify or clarify purportedly misleading information. Furthermore, SBFA contends that California’s customized interpretation of the Annual Percentage Rate (APR) conflicts with the federal Truth in Lending Act (TILA), potentially causing confusion among merchants. The DFPI moved for summary judgment to dismiss the complaint.
Updates and Nuances: Recent Ruling on SBFA vs. DFPI
On December 4, 2023, the trial level judge ruled in favor of the DFPI, granting their motion for summary judgment and dismissing the case.
First Amendment Argument: The judge disagreed with SBFA, concluding that the disclosures would help small businesses understand the costs and were neither misleading nor unduly burdensome.
Federal Preemption Argument: The judge deferred to the Consumer Financial Protection Bureau (CFPB)‘s authority to resolve preemption issues. In March 2023, the CFPB ruled that the Commercial Financing Disclosure Law (CFDL) does not conflict with TILA.
The SFBA has filed an appeal of the lower court’s grant of summary judgment with the United States Court of Appeals for the Ninth Circuit. On May 28, 2024, SBFA filed their appellate brief setting forth the facts on the record on summary judgment and their specific legal arguments, emphasizing the reversible errors made by the district court, particularly regarding the false and misleading nature of the compelled disclosures, the controversy surrounding the use of APR metrics on products (like receivables-based funding transactions) that APR was not designed to properly describe, and the lack of justification for the regulations. The preemption argument is not being raised on appeal. Following this, on June 6, 2024, the Appellee DFPI’s unopposed motion for an extension of time to file the answering brief was granted. The answering brief of the DFPI is now due on August 30, 2024.
Given these developments, SBFA’s challenge continues to underscore significant constitutional, substantive, and procedural issues within California’s regulatory framework.
The People v. Richmond Capital Group: Uncovering Predatory Practices
In the case of The People v. Richmond Capital Group, 195 N.Y.S.3d 637 (N.Y. Sup. Ct. 2023, unpublished slip copy), allegations of predatory practices have uncovered crucial legal considerations for revenue-based financing providers. Initially filed by the People in 2020, the court ultimately found for the People, holding that the Defendants in that case were “predatory lenders” making thinly disguised loans with usurious interest. The keys to this decision were the reconciliation duty (which was allegedly never performed by the Defendants despite the mandatory contract provisions and requirement that merchants submit bank statements to Defendants on a monthly basis), the fact that the transactions were explicitly based upon fixed repayment amounts with fixed repayment timeframes (as opposed to revenue based funding products, where remittance of the purchased receivables may vary in amount and duration along with the merchant’s revenue stream), contract provisions such as making a few missed payments or declaration of bankruptcy events of default (shifting the risk of loss off of the funder), and the fact that Defendants always referred to their products as loans, and not a bona fide purchase and sale of future receipts. The reprehensible conduct of certain Defendants who harassed, bullied, and made numerous fraudulent statements to their merchant customers certainly did not help their cause. In September 2023 and February 2024, the court issued further decisions addressing accounting and disgorgement of funds, but the core principles related to reconciliation and data remain the same. It’s unclear if Richmond Capital Group appealed any of these rulings.
U.S. Info Group, LLC v. EBF Holdings: Implications for ISO Behavior and Funder Accountability
2023 WL 6198803 (S.D.N.Y., 2003), a case out of the Southern District of New York involving New York law, involves allegations by a Plaintiff against a receivables-based funder similar to those in Richmond Capital, but with a very different set of facts, and a different outcome. U.S. Info Group attempted a civil Racketeer Influenced and Corrupt Organizations Act (RICO) claim against EBF Holdings, alleging that the receivables-based funding transaction at issue was a disguised usurious loan under New York law.
In September 2023, the court dismissed the case entirely on the funder’s motion to dismiss the third amended complaint. The judge ruled that U.S. Info Group failed to adequately allege facts demonstrating a “RICO enterprise” or widespread fraud scheme involving EBF Holdings and their affiliates. In addition, the Court re-iterated the major hallmarks of a true purchase and sale receivables-based funding transaction: (i) that the contract contained a reconciliation provision (and that the funder actually preforms reconciliations where warranted such that the provision is not illusory); (ii) that the risk of non-performance due to bankruptcy or declined revenue of the merchant always rests with the funder; and (iii) that there is no finite, fixed repayment term, which would be typical of a loan.
Legal Recommendations for Funders
Funders should consult with knowledgeable and capable attorneys in this area of law to establish and effectuate clear provisions in their contracts along with steadfast adherence to their contract terms and best practices.
As for the DFPI and California’s disclosure requirements, they remain the law of the land unless the final, unappealable decision of a court states otherwise. Thus, funders should consult with their attorneys to ensure strict compliance with California’s disclosure law and regulations.
In conclusion, the recent legal battles involving the revenue-based financing industry underscore the need for continuous vigilance, genuine commitment to proper contract terms and best practices in servicing those contracts, and adaptation to emerging regulatory paradigms, in order to ensure sustainable growth and legal compliance within this dynamic sector.
Top Stories of 2024 vs 2014
December 30, 2024A lot happened in 2024, but rather than just rehash it all out, let’s revisit the world of 10 years ago. In 2014, both OnDeck and LendingClub went public, Bitcoin landed in the mainstream, Square started funding, securitizations in the industry commenced, and the world was still not totally sold on the concept of MCA. Oh how things changed!
BriteCap Financial Ramps Up Team, Ready For Growth
December 20, 2024
The stream of announcements coming out of BriteCap Financial garnered notice. It started with news of a $150M credit facility back in August, followed by announcements of a new CEO, CFO, CCO, VPs, and more. The new CEO, Richard Henderson, whose CV includes previous roles at CAN Capital, Marlin Capital Solutions, and Direct Capital, told AltFinanceDaily that the company wanted to have the right team in place to carefully grow the business. BriteCap, which is part of the North Mill family of companies, offers attractive term loans to small businesses.
As part of the plan, the company is looking to add not just new brokers but the right brokers, especially given the upstream programs they offer to merchants. “We’re being very selective on who we onboard,” said Henderson. “We’re trying to make sure that we’ll use that to get to scale, but also to build powerful relationships with those brokers where it’s a true partnership.”
BriteCap has developed an online checkout system to streamline the funding process. It can be configured to work with however the broker is used to working. They’ve focused a lot on the mobile experience so that a merchant need not even be in front of a computer to go through it.
One notable advantage to BriteCap is precisely that affiliation with the North Mill family because it opens up the possibility of not just working capital as a solution but also equipment finance. According to Henderson, the potential crossover between the products works well especially when the deals have been originated in the right context. That context includes the best practices and professionalism that equipment finance brokers typically operate within.
Among the C-suite executives to recently join BriteCap are Pushkar Choudhuri as Chief Financial Officer and David Lafferty as Chief Credit Officer. The timing of everything aligns with the firm’s economic sentiments. Henderson said that he believes optimism is higher now and growing.
“…generally speaking, we’ve seen demand picking up and we have a pretty bullish view on the economy moving forward,” he said. “I think we’re entering into a very good time in our space.”
Taycor Financial to Become the Vendor Division of North Mill Equipment Finance
November 14, 2024NOVEMBER 8, 2024, NORWALK, CT – North Mill Equipment Finance, LLC (“NMEF”), a leading commercial equipment lessor located in Norwalk, Connecticut, announced today the acquisition of 100% of the stock of TF Group, Inc., (“Taycor Financial”), a preeminent, technology-driven finance provider in El Segundo, California. Taycor Financial will continue to operate as an independent division of NMEF, with a focus on developing direct and vendor origination programs.
NMEF’s partnership with, and substantial capital investment in, Taycor Financial over the past four years has been instrumental in expanding our commercial footprint,” said David C. Lee, Chairman and CEO of North Mill. “As we take this next step to bring our companies even closer, we want to underscore that our dedication to our existing partners remains unwavering. This integration will further empower each division to build on its core strengths – with NMEF committed to nurturing and expanding our referral partner relationships, while Taycor focuses on developing vendor and direct programs.”
Michael Hong, President of Taycor Financial, stated, “This partnership with NMEF represents an exciting opportunity to expand our capabilities and enhance our service speed across underwriting, documentation, and funding. While we look forward to leveraging our combined technology and resources, our dedication to exceptional customer care remains at the heart of everything we do. We will continue to operate under the Taycor Financial name with the same steadfast commitment to our clients and partners, fostering strong relationships, and delivering personalized, responsive support.”
About North Mill Equipment Finance (NMEF)
NMEF is a national, premier lender who works with third-party referral (TPR) sources to finance small to mid-ticket equipment commercial leases and loans ranging from $15,000 to $3,000,000 and up to $5,000,000 for investment grade opportunities. NMEF accepts A – C credit qualities and finances transactions for many asset categories including but not limited to medical, construction, franchise, technology, vocational, manufacturing, renovation, janitorial and material handling equipment. NMEF is majority owned by an affiliate of InterVest Capital Partners. The company’s headquarters are in Norwalk, CT, with regional offices in Irvine, CA, Voorhees NJ, and Murray, UT. For more information, visit www.nmef.com. One of NMEF’s controlled affiliates, BriteCap Financial LLC, is a leading non-bank lender providing small businesses with fast, convenient financing alternatives such as working capital loans since 2003 from its main office in Las Vegas, NV. For more information, visit www.britecap.com.
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