Business Loan Brokers and MCA ISOs Call it Quits
May 17, 2016
Hard times reported just a month ago are already turning into farewells
Hard times for those facilitating small business financing solutions are starting to cause a visible exodus from the space. In their wake, industry vendors have told AltFinanceDaily of unexpected credit card charge disputes for leads long past purchased or for ISO software previously paid for.
One failed ISO who lasted just 14 months aired it all out on an industry forum. “I do have to say the entire journey was not fun or lucrative. I lost $250,000 of my own money [and] could not broker a deal to save my life,” he wrote. From what he could also tell during his experience, is that nobody else around him was really making any money either.
He’s not alone in feeling this way. Another user just two months earlier started a thread with this title, “Does anyone really make money in merchant cash advance?” In it, he wrote, “The merchant cash advance industry sucks. I’ve been in this business for now 1 year after 20 years of sales experience and what I find is that this industry is the craziest thing I have ever seen.”
Some sales reps or ISO owners are simply venting frustrations and continuing on but others are writing real goodbye letters. A few days ago for example, one long-time MCA industry consultant wrote on LinkedIn that he was “done with merchant cash advance” and that he had finally moved on to something that made him happy, which from the looks of it, is a career in playing Poker full time.
Gil Zapata of Lendinero wrote to AltFinanceDaily in an email about what’s happening out there. “Lead generation is expensive,” he said. “Most people think that obtaining a new client is just cold calling. Wrong. There is a cultivation process.”
And part of it may be a misunderstanding of what the sales process is like, he insinuates. “Many people who have tried entering this industry think it’s the mortgage business,” he said. “It’s not.”
On forums, users often attribute some of the issues to “low grade professionals,” salespeople who would clearly benefit from more training. They’re part of the reason why an official training course is in the works and should be available some time this year.
“Good agents are not easy to find. Recruiting, hiring, and training is costly,” said Zapata.
And even then with the right salespeople, he added that “a lot of the internet leads are dead deals or not the best leads. Forming partnerships is not easy if you are looking to generate massive deal flow.”
Bright Spot
Unlike some who are throwing in the towel, Zapata is not going anywhere. Neither is another sales rep who contacted AltFinanceDaily off the record. Just 16 months in to the business, he’s reportedly funding more than $500,000/month just from cold calls and claims that he is not stacking any deals. He admittedly says that he eats at his desk and never leaves. Being an equity trader in a prior life is what helped him succeed at this, he said.
“Some ex-stock brokers who can pound the phones can do very good,” Zapata said. “We only lose deals to hot shot brokers in N.Y. who were aggressive stock brokers or sold some sort of financial product out of Wall Street.”
Indeed, just last week AltFinanceDaily learned that a sales rep from NYC that we had previously spoke with had just bought a red Lamborghini to celebrate his long and hard fought success. He’s not even 30-years-old yet and business is obviously going well.
More than a year ago, I wrote that it had become much too late to get into this business if all you had was a couple thousand bucks in startup funds. At Transact 16, one attendee told me they believed that the absolute minimum needed to stand a chance in setting up your own ISO shop at this point was $250,000, purely because marketing costs have skyrocketed.
Might it really take the cost of a new Lamborghini to start an ISO these days? If true, that would ironically mean that as a generation of disenchanted brokers make their way for the exits, they may be passed by an entirely new generation of brokers riding exotic Italian cars on their way in.
Even so, they should heed caution from those that have spent years in the trenches. “This industry is not as easy as it seems,” Zapata wrote. “Cost can eat you up alive.”
In a first, Bizfi crosses $144 million in Q1 funding
May 17, 2016
Thanks to the partnership with Western Independent Bank, Bizfi had a record Q1 to date with $144 milion in loan originations.
The New York-based fintech company funded 3,605 small businesses, a 49 percent increase from $96 million funded in Q1 last year, Bizfi said.
The partnership with Western Independent Bank in March this year opened up several markets in the midwest and west coast Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada New Mexico, Oregon, Utah, Washington and Wyoming can benefit from this partnership. Referring to the partnership, Bizfi founder Stephen Sheinbaum said, “These types of relationships not only help to fuel Bizfi’s growth, they ensure the financial partner continues to maintain their customer relationships by providing their clients an alternative for the financing they need,”. “In 2016, we’re looking forward to further expanding our product set and partnering with more traditional financiers, enabling us to fund the growth of even more of America’s small businesses.”
Bizfi’s marketplace partners with lenders like OnDeck, Funding Circle and Kabbage and the company has so far funded 29,000 small businesses with $1.6 billion in capital since 2005.
BlueVine a Serious Player After Citigroup Investment (And it Could Land Them Citigroup Referrals)
April 27, 2016
When BlueVine announced raising $40 Million from Menlo Ventures three months ago, they raised eyebrows in the marketplace lending community but they didn’t steal the spotlight. That’s because BlueVine’s core focus, invoice factoring, is arguably the least sexy segment of small business finance. Just hearing the phrase invoice factoring is enough to induce one into a coma. That of course is what made the age-old practice ripe for disruption. But even so, BlueVine isn’t limiting themselves to just that.
The company now offers business lines of credit with interest as low as 6.9%, according to their website. That makes them a competitor of OnDeck, Lending Club, Funding Circle and many others in a crowded field.
A new investment from Citigroup however could change everything for them. While the terms from Citi Ventures (the banks’s investing arm) were not disclosed, Arvind Purushotham, told CNBC that it’s possible that Citigroup forms a referral arrangement with BlueVine to help small business customers of the bank find attractive credit. That’s significant because Purushotham is a managing director at Citi Ventures.
Two weeks ago, OnDeck CEO Noah Breslow, told the crowd at the LendIt conference that partnering is a company’s only chance now to gain a real foothold in the industry. Breslow could speak from experience since OnDeck currently has a unique arrangement with JPMorgan Chase.
While the sources interviewed by CNBC stressed that the BlueVine-Citigroup investment did not constitute a commercial partnership, the stage seems to have been set for that to be possible in the future.
Even though BlueVine just started making loans 3 months ago (they have been factoring since 2013), loans already make up 15% of their overall business. This is one invoice factoring company that rival small business lenders won’t want to sleep on.
From Small to Big: Why Funding Circle is Building its Intermediary Channel
April 21, 2016
If online lenders want to disrupt banking, they need bankers.
Small business marketplace lender Funding Circle hired an intermediary finance veteran Neil Mullane to expand the company’s reach among small merchants. Mullane comes with eight years of experience in commercial finance at Barclays, where he oversaw business and corporate banking working with small businesses with a £250,000 to £25 million turnover.
The London-based P2P lender has channeled more than $2 billion of loans from individual and institutional investors to businesses in the U.S., U.K. and Europe since 2010 and has said that it remains dedicated to two principles, “marketplace and small business.”
And its gaze is set on Europe. Last year, it acquired German marketplace lender Zencap for an immediate footprint in Germany, Spain and Netherlands. Additionally, its SME Income Fund that was listed on the London Stock Exchange in November 2015, raised £150 million from shareholders and started lending to small businesses in those markets last month.
Last week (April 14), the company also launched UK’s first P2P securitized ABS backed by loans worth £130 million.
Speaking at LendIt USA recently, the company’s US co-founder and managing director Sam Hodges envisioned the golden age for marketplace lending where it takes “seconds to issue credit,” from a broad network of global investors. “A loan should get funded by a network of investors all over the world — be it a pensioner in London, a hedge fund manager in Sydney or a family office in New York simultaneously putting money to work through a global platform,” he said.
He elaborated further to note that the industry will have to work on four key tenets to get there: Stable lending capital, taking controlled risks, maintaining operational discipline to make sure that unit economics favor scaling and lastly, maintaining integrity around infrastructure and transparency.
The company has noted its intention to move in this direction at least with hiring the right talent, whether through the former Executive Board Member of the European Central Bank (ECB), Jörg Asmussen Mullane to lead business development or beefing up its risk compliance and product engineering teams in San Francisco.
Direct Mail Still Very Effective, Says National Funding President Torrie Inouye
April 16, 2016
When I met with San Diego-based National Funding President Torrie Inouye at Lendit, I was surprised to learn that the company had quietly funded $293 million to small businesses in 2015, enough to earn them a spot on AltFinanceDaily’s top 10 alternative business funder list. The company isn’t new. They were founded in 1999, which puts them in the same category as CAN Capital, a 90s era relic that has not only survived but has continued to evolve and quite literally be a leader of the pack.
Inouye graduated from Stanford University in 2001 with a BA in Economics and started at National in 2004 where she worked as a Corporate Strategy Analyst. After 3 and a half years, she went on to play key roles at Union Bank and Intuit before returning back to National in the Fall of 2014. With a strong background in data analytics, Inouye took over as the company’s president just last week. Dave Gilbert, the company’s founder, has been the CEO since the beginning.
“Dave has always understood that data is valuable,” Inouye said, adding that she had been tasked with harvesting it.
“One of the trends that we’re seeing in our data is our direct mail response rates being much higher than what other people might expect,” she said. “We’re still surprising really good at direct mail.”
Others within the alternative lending space have made similar assertions, which ironically kind of undermines the concept of online lending itself. For Inouye, she says the online part is “the product.”
“You can control the message and you can control who you’re talking to with direct mail,” she explained. Though in a way the offline tactic is driving people to engage online. “A lot of our direct mail response comes through our website,” she said.
An expanded version of our interview will appear in AltFinanceDaily’s May/June 2016 edition scheduled to come out in early June. Subscribe FREE here.
WebBank Alleged to be “Sham Pass Through Bank” in New Lending Club Usury Class Action
April 15, 2016
A new class action lawsuit filed on April 6th alleges that Lending Club and WebBank among others, violated state usury laws, consumer protection laws and the Racketeer Influenced Corrupt Organizations Act (“RICO”).
Plaintiff Ronald Bethune, a New York resident, is arguing that his 29.97% APR loan through Lending Club violated the state’s 16% interest cap.
While the Second Circuit’s ruling in Madden v. Midland Funding, LLC is cited, the complaint focuses more on WebBank’s role in carrying out a collaborative fraud scheme.
Defendants associated together for the common purpose of limiting costs, eliminating oversight, and maximizing each members’ profits by engaging in the fraudulent conduct described herein. Specifically, the members of the Enterprise enticed tens of thousands of consumers to sign up for loans through LCC [LendingClub Corporation], hoping that enough consumers would select LCC for their loans without the fact that WebBank was a “pass through” sham party to the transaction being brought to light making the loans illegal and usurious. The purpose was to allow Defendants to charge, and profit from, usurious interest rates to Plaintiff and members of the Class, and to do so without regulatory oversight.
The plaintiff acknowledges that Lending Club recently adjusted its relationship with WebBank and the class seeks to recover damages for all loans made prior.
WebBank’s parent company, Steel Partners Holdings LP, who is also named as a co-defendant, has barely registered any movement in its stock price.
Lending Club by contrast, is down almost 10% since the complaint was filed.
YOU CAN DOWNLOAD THE FULL CLASS ACTION COMPLAINT HERE
This case is unrelated to another pending class action against Lending Club.
The Top 10 Alternative Small Business Funders
April 12, 2016At Lendit yesterday, I learned the 2015 origination volume of two additional small business funders that I was not able to ascertain previously. They are CA-based National Funding and GA-based Kabbage. Below is a list of the original top 8 funders that has been amended to form the top 10.
RANKINGS
| Company Name | 2015 Funding Volume | 2014 Funding Volume |
| OnDeck | $1,900,000,000 | $1,200,000,000 |
| CAN Capital | $1,500,000,000 | $1,000,000,000 |
| Funding Circle | $1,200,000,000 | $600,000,000 |
| Kabbage | $1,000,000,000 | $400,000,000 |
| PayPal Working Capital | $900,000,000 | $250,000,000 |
| Bizfi | $480,000,000 | $277,000,000 |
| Fundry (Yellowstone Capital) | $422,000,000 | $290,000,000 |
| Square Capital | $400,000,000 | $100,000,000 |
| Strategic Funding Source | $375,000,000 | $280,000,000 |
| National Funding | $293,000,000 |
An even larger list exists in the current issue of our magazine. To subscribe to future issues for free, click here.
Platinum Rapid Funding Group Partners Up With The Asian American Hotel Owners Association
March 29, 2016
NY-based Platinum Rapid Funding Group has become the exclusive funding partner of the Asian American Hotel Owners Association (AAHOA). AAHOA has over 15,000 members and is the largest hotel owners association in the world.
“Our enthusiasm to create this new relationship serves as the galvanizing force that will assure we attain deliverable results for AAHOA,” said Platinum CEO Ali Mayar. The company originated more than $100 million in funding last year alone.
As the largest hotel owners association in the world, AAHOA’s mission is to advance and protect the business interests of hotel owners through advocacy, industry leadership, professional development, member benefits, and community involvement.
“We are delighted to partner with Platinum Rapid Funding and look forward to sharing their services with our members,” said AAHOA President & CEO Chip Rogers.
Platinum’s unique business model is said to have played a role in AAHOA’s selection, including among many other attributes, their “white glove” service.
