Work With a Broker or Go Direct?
August 2, 2022“I believe that a merchant might be better off going to a broker so the broker can make available to the merchant several different offers,” said Pooja Nene, Broker Relations Manager at Balboa Capital. “And if they’re doing what they need to do correctly and if they’re really consulting the merchant correctly, I think that they would be providing the best offers to the merchant based on their needs.”
It’s the age-old question, are merchants better served by using a broker or going direct? Opinions vary and are usually colored by what role one has in the process.
“The advantages of working with a broker is it saves the merchants a lot of time, and in some cases saves them money in fees,” said Randy Guerrier, Senior Funding Executive at Banana Exchange, a company that provides capital to MCA providers. Guerrier’s vantage point makes him less biased. “A lot of brokers do have a lot of preexisting relationships and wholesale rates that they could get with their relationships,” he said.
Matthew Washington, Founder & CEO of Moneywell GRP, says there’s a bit more nuance to the whole thing.
“The reality is that when the merchants go direct with lenders, they’re essentially dealing with the lender’s broker shop, right?” he explained. “Any lender that gets directly contacted by a merchant usually gives them off to their sales team, which [is also able] to send [them] off to other lenders.”
Washington, whose company is a funder, was an advocate for what brokers can accomplish for their clients especially since he relies entirely on them for business. He emphasized that his company is one that doesn’t have a direct sales team to handle any direct inquiries.
“All my business comes from my ISO channel,” he explained. “So when I approve a deal, it’s up to me and the broker to win it if there’s competition, but if I declined the deal, my brokers take that deal to another lender that has an appetite for that particular scenario.”
“[Lenders] may not have the staff available to form that relationship with a merchant,” said Pooja Nene of Balboa about the debate on broker vs. direct. She also cautioned that sidestepping a broker in the process might not translate into an increased likelihood of approval.
“If it’s the first round of funding, if it’s their first loan schedule, we don’t know who this merchant is, and we may feel a little bit more comfortable with that file coming through the broker and the broker discussing the terms with the merchant,” she said.
Guerrier of Banana Exchange said, “It always comes down to working with the right type of broker, right? It comes down to the person that answers the phone that’s working with you, whether it’s at a big company or small company, I like to look at things from the individual working with the right people.”
And finding the “right people” isn’t automatic because they still have to be found, and once they’re found the lender has to decide if the customer is also right for them. Speaking about that in relation to all the economic uncertainty, Washington of Moneywell GRP said that a funding company should stick to what they’re comfortable with and not “chase deals” that they wouldn’t normally fund.
“But, also [on being found], I would market the heck out of my company and make sure that everyone in the world knows what I do, my product line, my branding, my logo, and make sure that anyone that is looking for capital that they know ‘hey, this company is always popping up,’ and I’d make sure that I stand out,” Washington said.
North Mill Hits $1 Billion in Originations on Anniversary of Recapitalization
August 1, 2022AUGUST 1, 2022, NORWALK, CT – North Mill Equipment Finance LLC (“NMEF”), a leading independent commercial equipment lessor headquartered in Norwalk, Connecticut, announced today that the company crossed the $1 billion mark in total originations since its recapitalization by an affiliate of Wafra Capital Partners, Inc. (WCP).
Four years ago this month, North Mill was acquired by WCP, a New York based SEC-registered investment adviser that manages or advises funds and accounts that invest in specialty finance, rental and leasing platforms. “They’ve been an extraordinary partner, supporting our growth strategy every step of the way,” said David C. Lee, Chairman and CEO for North Mill. “The fact that we’ve reached one billion in volume in four short years, on our anniversary date, is a testament to their collaboration along with the passion, dedication and hard work espoused by the entire team at North Mill.”
Since the recapitalization, North Mill has undergone a major transformation, graduating from a niche-lender that focused on challenged credits in the transportation sector to a multi-faceted provider of financial solutions spanning the A to C credit markets. The company now finances assets ranging in diversity from construction and medical equipment to major franchises such as Dunkin Donuts, Subway and Burger King. Expanded operations have necessitated the opening of regional offices in multiple locations across the nation.
North Mill’s leadership team has reworked every facet of the organization by investing in the technology and funding and marketing infrastructure necessary to originate new business exclusively through the third-party channel. The company has consistently reported record-breaking headlines the last few years, most recently declaring an all-time high for the second quarter of 2022 as organic originations surged to $146.6M, up 34% from the first quarter. Just last month, North Mill made another major announcement as the company introduced a simpler pricing scheme, imparting a level of transparency and connectivity between the organization’s buy rates and credit parameters. The enhancement makes it much easier for referral partners to determine borrower eligibility and to identify the potential buy rate at which a deal will likely price.
About NMEF
NMEF originates and services small to mid-ticket equipment leases and loans, ranging from $15,000 to $1,000,000 in value. A broker-centric private lender, the company accepts A – C credit qualities and finances transactions for many asset categories including construction, transportation, vocational, medical, manufacturing, printing, franchise, renovation, janitorial and material handling equipment. NMEF is majority owned by an affiliate of WAFRA Capital Partners, Inc. (WCP). Headquartered in Norwalk, CT, NMEF has regional offices in Irvine, CA, Dover, NH, Voorhees NJ, and Murray, UT. For more information, visit www.nmef.com.
Shopify Capital Originated $416.4M in MCAs and Loans in Q2
July 27, 2022
Shopify Capital originated $416.4M in funding to small businesses in Q2, the company announced. That was spread across the US, Canada, and the UK. The figure represented a large increase over the $346.7M in Q1.
Although its funding business grew, the overall parent company announced that it was laying off 10% of its employees. The CEO explained that this was a correction to its expectations that pandemic-driven e-commerce sales would continue to soar for a long time, but that they have instead slowed.
DoorDash Expands its Cash Advance Program to the Dashers Themselves
July 21, 2022
First it was restaurants. Now it’s the Dashers. DoorDash recently launched a limited trial of a new program, cash advances to delivery people. It’s a bit altruistic, however, because it is technically an interest-free 30-day loan with no fees at all.
According to the website, loans are paid back either through a percentage of future Dasher earnings or by placing a debit card on file. Loan amounts are determined by a Dasher’s revenue history. Credit is not a factor.
“Dashers who receive an email or see details in app about this pilot are qualified to participate in this pilot,” the site says. Preliminary reviews online by Dashers that have purportedly tried it, claim loan amounts can go as low as $50.
Eligibility is discoverable through the app. “Check your Dasher app to apply for a cash advance,” the site says. “Select how much cash you want and choose your repayment method.” Payments begin 7 days after funding.
DoorDash launched its other program, its merchant cash advance program via DoorDash Capital, late last year.
A Code “Quiltt” for Fintechs
July 18, 2022
It’s called Quillt, a low-code tool that allows companies to integrate with several third-party services to either pull in datasets or act on data.
Quiltt says their tool detracts the need for companies to hire costly engineers to integrate their services one at a time. In doing this it allows for data to be accessed instantly by “abstracting away” the need for any organization to integrate with services one at a time and “right the business logic” required to each individual service into a single integration.
“So, with us, regardless of who’s in your data stack, we can essentially have a backend that processes all that information so you can focus on whatever your core focus is at the end of the day, as opposed to repetitive data, plumbing, and infrastructure,” said Mark Bechhofer, Cofounder & COO.
The low code aspect of it is modules with just a couple lines of code that anyone can paste into their application and embed a frontend experience. Startup companies that are looking to build in fintech with small teams and little funding could also seek assistance through Quiltt, according to Bechhofer. It could even be a bank or a credit union that wants to focus on their core competency and not worry about adding commoditized feature sets that their competitors already have.
“We are issuing cards and processing transactions, we are really doing the data intelligence around money,” said Bechhofer.
Before Covid, Bechhofer and business partner Ruben Izmailyan were selling a white label suite of DFM apps to banks and credit unions. The two business partners were often asked how they had built this backend infrastructure to take in data from “disparate sources” and combine it, analyze it, standardize it and make sense of it.
“We realized that was actually a much larger market with potentially a much larger play. And so we kind of ripped apart our old application into what I call like a Lego box and fintech infrastructure, and pivoted the company into what it is today,” said Bechhofer.
Driven by the mission of bringing financial wellness to as many people as possible, the team at Quiltt is excited about the possibilities ahead.
“We think that providing this new abstraction layer of technology will empower many new types of fintech builders and essentially give license to folks who maybe aren’t full time data scientists or engineers without worrying about hiring expensive teams. We’re really excited about what people might build on our platform that we haven’t even envisioned,” Bechhofer said.
The Highway to Quality Leads and Closing Deals
July 13, 2022
In the early months of 2020, twenty-two year-old Gary Parker found himself on a nature walk along a stretch of highway in Canada. As a savvy marketer in the medical spa field, the wide grip of Canadian pandemic lockdowns had quickly turned his thriving business into dust.
Swept off of his feet by the suddenness of his predicament, he turned to nature to clear his mind and found his next venture in the unlikeliest of ways.
“I went for a walk outside, and so I saw these trucks,” Parker said, “just like trucks on the road just driving. I was like, ‘everything is shut down but there’s trucks just moving things across the country.'”
Parker’s verbal description of the moment was enhanced by his scenic Zoom background when he was interviewed for the story. Parking his laptop on the hood of his car next to a real life mountain range along a Canadian highway, he explained that he didn’t have to tell me how that walk felt because he could show me. Moving his laptop camera around to show off tractor-trailers behind him in the distance, the inspiration that had come to him in 2020 was still present.
Though the country was supposedly closed for business back then, he couldn’t help but notice how many trucks were still on the highways shuttling supplies around.
“I’m a bit of a curious guy,” Parker said, “so I started Googling, like, ‘How much for a truck this big?’ and you know, they were like 70,000 bucks, 100,000 bucks. And I was like, ‘how do people even purchase these trucks?'”
Parker went on a research mission and discovered that few people, if any, were buying large trucks outright with cash, that so much of it was done through financing.
“And so I look up ‘what’s financing? How do people get truck financing?’ And then I recognized that other than truck-sales groups, there’s a section of people where their job is just to help people find the right financing methods.”
Parker thought he might be able to work with the latter group, given his marketing background, to help connect truckers with financing, but discovered the market in Canada was relatively small.
“Things really started to boom when I met my first USA client,” Parker said, because the demand in the US for truck financing seemed endless. “…in one day you could generate 100 inquiries of people who wanted financing for trucks,” he said.
Parker soon figured out that trucks were just one market in a wider industry of equipment financing, a rabbit hole of endless opportunity that led him to other big name entrepreneurs in the space like Josh Feinberg and Cheryl Tibbs. Feinberg, coincidentally, was a featured cast member in AltFinanceDaily‘s recently produced equipment finance sales reality show.
Parker found common synergy with both and with their help was further introduced to the entire gamut of small business financing solutions.
“And that’s when I got fully immersed,” he said.
He didn’t want to be a broker or a lender, however, so instead he set out to focus on one very particular area of the process, lead generation. First, he built a system to help others, and then he gravitated towards creating a matchmaking system where brokers could connect with businesses that came to his company for help. The end result is his current company that many brokers have now become aware of, Fundly.
“So Fundly is an online marketplace,” he said, “where we have two things. Right now we have real-time matches, so [merchants] who are looking for funding every single day can come in free-of-charge and submit their inquiries, and we have funding members who can join for $1 a month who can see all these inquiries come in and then decide whether or not they want to pitch or share their profile with someone for five bucks.”
Parker explained it as a Tinder-style system where brokers can see the inquiries but can’t talk to the merchants unless the merchants also choose to engage with them. The upside is that when merchants say ‘yes,’ the brokers get to speak to someone that is interested right at that moment and with them specifically.
But Parker is a marketing guy, not a developer, and the execution of this required additional people to put the vision together.
“So we have a team now. Before when we just started, it was just me,” he explained. “If you’re going to write anything, let them know [about the team], because I have a hard working team who is behind every single thing and it wouldn’t have been possible, the technology wouldn’t have been possible without the team.”
Despite the business being born in Canada, Fundly is only targeting the US market because of its scope. Finding interested business owners is not even the hard part of his job, he explained, but rather the hard part is about educating brokers about how to communicate with businesses.
“I’m trying to teach our community members as they come into our orientation, what they think small business owners care about,” he said.
A big mistake for a broker, he explained, is starting off with a pitch about how many lenders they work with.
“Small business owners do not care about how many lenders you have in your back pocket,” he stated. “We’ve come to recognize a small business cares about one thing, what can you do for them? speak in terms of them.”
He imbues them with this marketing wisdom not just because he wants to improve their success rate, but also because he is adamant about making sure the businesses that come to his company get access to the right people with the right programs and prices. He doesn’t want to see these customers get a bad deal.
That Parker is a 24-year old former medical spa marketer hardly matters to brokers who recognize talent when they see it. When AltFinanceDaily asked a senior executive of one reputable broker shop off the record what they thought about Parker, they responded by saying “he’s a genius.”
And besides, he’s not exactly that far off from where he started.
“The machines that some of the brokers finance, like laser therapy machines, stuff like that, I was working on the flip side, from the consumer perspective, having people sign up for high ticket packages from these machines,” he said.
And yet he’s very appreciative of how far he’s come since he went for that walk to reflect on his loss.
“God helped me. It was, it was rough, man. Yeah, not going to lie,” he said. “It was really rough.”
Toward the end of the interview, Parker had already shifted into marketing teacher mode.
“What really sets us apart is psychology,” he said. “Most people think that to get a business owner, you have to hit them and say, ‘Are you looking for the lowest terms? And you know, X, Y and Z??'”
The better approach, he explained, is to tell them that you will get them answers quickly.
“That results in a lot more funding,” he said, “because it’s not making a promise upfront, saying ‘let’s get you funds in 24 hours,’ it’s saying ‘let’s get you answers. And here’s someone to help you find these answers.'”
Fintech Lender Signals That Capital Markets Are Worried
July 11, 2022
Concern about the economy is real. Upstart, the publicly traded online consumer lending marketplace, is noticing such a shift that it felt compelled to publish a sneak peek of its Q2 earnings. And it’s not good.
“Inflation and recession fears have driven interest rates up and put banks and capital markets on cautious footing,” said Dave Girouard, co-founder and CEO of Upstart. Girouard followed that by saying that its marketplace is “funding constrained,” a challenge “largely driven by concerns about the macroeconomy among lenders and capital market participants.”
Originations in Q2 were down as a result.
Though the company is still optimistic that its risk models will perform, the economic headwinds come just as it was beginning to roll out its new small business lending product.
In May, Girouard said that their small business loan pricing model would include more than 500 variables about both the applicant and business.
“It will also feature our loan month modeling framework, which is one of the most impactful innovations added to our personal loan product a few years back,” Girouard said. “Our initial testing suggests that version 1 of our SMB model will deliver higher accuracy, as measured by Area Under the Curve, or AUC, than peer models that have been in the market for years.”
Upstart plans to publish its official Q2 earnings on August 8th. The price of its stock is down 93% since its all time high reached last October.
Thoughts on Inflation, a Recession, and Regulation From Someone Who’s Seen ‘This Movie’ Before
July 7, 2022
“I can tell you that in the US that originators are starting to adjust their underwriting policies,” said David Goldin, CEO of Capify and Head of Originations at Lender Capital Partners, “I don’t know about pricing. I haven’t heard that yet.”
Goldin, who has been a small business finance chief executive for 20 years, believes that the economy, inflation, and interest rates are front-and-center issues that the industry should be thinking about right now. In the UK, one region that Capify operates in, Goldin said that several small business finance executives there are already talking about raising margin and doing shorter term deals to prepare for the increased risk.
“Some originators are smart enough to be proactive and others are saying, ‘oh we’ll just watch it.’ So it’s either going to take trickling down through the economy globally or defaults to go up for these adjustment to happen,” he said.
During the Great Recession of ’08/’09, Goldin was right in the thick of it as the CEO of AmeriMerchant, one of the first MCA companies in the US. He explained that there’s a notable difference between now versus then.
“One of the things that didn’t exist back then, someone doing a second [position] was like unheard of in 2008,” he said. “Now, what is it now? first, 2nd, 3rd, 4th, 5th? 6, 7, 8, 9. It’s like a horse race. Ten horses in the race in some cases. […] You have to be careful, right? You have to make sure you’re covering your margin by charging enough and going shorter.”
But in a competitive environment where nobody wants to reveal their cards or risk losing business, not every funder is keen to start making changes right now. Goldin said that many funding companies will wait to see if their competitors start tightening up first especially if they’re driven by their ISOs and brokers. The downside of becoming more conservative is that brokers might just decide to take all of their business elsewhere.
But a looming recession isn’t all bad. “There are some positives,” he said. “The positives are the banks do tighten up. It’s just a question of when not if. So, you may get applicants that come to alternative financing that may have never taken or considered these types of products because they got bank financing.”
Complicating the landscape now, however, is that funding companies are wrangling with new state regulations. Goldin is aware of several originators that have temporarily paused business in Virginia, for example, where a disclosure requirement went into effect just last week. The soon-to-be implemented New York and California laws are also causing rumblings about funding suspensions respectively. In each of those states it was “sales-based financing” products that were specifically targeted, a trend that looks sure to continue as states like Maryland, Connecticut, and others are determined to reintroduce disclosure legislation next year.
“I think more and more originators will eventually get away from the MCA model,” Goldin said, “and go more towards the business loan model by partnering with a bank. I think you’re going to see more companies trying to implement bank programs to become full business loans and not deal with all the nuances of a state by state and MCA program.”
Goldin’s point of view, wisdom, and predictions are aggressively sobering. Only three months ago, industry sources were telling AltFinanceDaily that their outlook for 2022 was optimistic and that the end of covid-era government stimulus suggested that there would be growth for non-bank finance companies. Suddenly the tone has shifted, the stock market has plummeted, and interest rates are rising.
“I think if you resurveyed originators now, I think you’d get a different response than you did eight weeks ago or even four weeks ago,” Goldin said. “I can tell you right now that capital providers are asking their originators about how they’re making adjusments in this environment…”
Indeed, AltFinanceDaily did speak with several players just last week and did notice that the general sentiment had shifted to one of concern and caution.
“I think funders should be thinking about redundancy,” Goldin said. “More than ever the best time to raise capital is when you don’t need it. And I don’t know if [funding sources] will pull lines, yes if defaults go up, but they may not be as inclined to enter into new relationships in this environment.” Because of that, now might be the last best opportunity to secure additional credit sources even they’re not necessarily needed, he suggested.
With that, he said that funders should be thinking about tightening up the bottom of their credit profile, increasing their margins, doing shorter term deals, looking for more mature businesses, and working with businesses with higher credit scores.
“I think that those that don’t make credit adjustments, raise margin, and go shorter are going to have their you-know-what handed to them,” he said. “I’ve seen this movie too many times. It doesn’t have to be called a recession. […] It’s all about affordability to repay, and the more debt [the customers] have, and the more their margins are squeezed, or the more their sales go down. That’s when problems begin. You’re less likely to have a problem if you’re only out six months instead of eighteen months. I’ve used this saying a million times: ‘When the ships are too far out to sea and it’s a tidal wave, you can’t get them back.'”
