Immigrating From Cuba With “Nothing in my pockets,” to a CEO Funding $12 Million a Month
December 15, 2020
“Work hard, don’t ask questions, and good things will happen to you,” Frank Ebanks described his keys to success in the MCA world. “Being Positive, working hard, and keeping my eyes open: If I hadn’t been looking for opportunities at 2 am in the morning on Craigslist, I would have never known about this industry, but it’s huge, it’s such a big industry.”
Ebanks started what would become Spartan Capital shortly after seeing an ad calling for startup investors in an industry Ebanks had never heard of, called Merchant Cash Advance.
It was around 2016. Ebanks was up late in the NYU university library, putting himself through an MBA while working as a reactor operator at the Indian Point nuclear power plant in Westchester.
Despite the job security Ebanks enjoyed, he said he wasn’t happy with his career, wasn’t getting the satisfaction he wanted. He had already made it a long way— starting before the millennium as a Cuban immigrant, immigrating to the Dominican Republic in 1998 and then Florida in 2002 with empty pockets. Shortly after arriving, Ebanks enlisted.
“I spent some time in the army; I wanted to put in some time,” Ebanks said. “I said: ‘I’m a new immigrant, what’s the best thing that I could do to reward these opportunities?’ To serve in the army, give the country a couple years, and payback in advance for this opportunity that I knew I was going to have.”
Ebanks said he learned early on to take every opportunity seriously. He served for two years and then became an engineer and contractor for the army, working on the Patriot Missile defense system. He went through college at NJIT, graduating in 2009, and following in his father’s footsteps to become an electrical engineer.
After working with South Jerseys PSE&G, Ebanks took the opportunity to work full time shifts at the the nuclear power plant, and by 2016 he was pursuing an MBA and looking for ways to grow what he called “my empire.” Used to investing in small businesses already, discovering MCA fit right within his world.
“I’ve always been active, throughout my professional career I had businesses in real estate, I owned several businesses such as laundromats, a lot of retail cell phone stores and things like that,” Ebanks said. “So at one or two am in the morning, I’m working on how to build my empire. I was on Craigslist looking for opportunities, seeing what’s out there, and somebody wanted an investment, to partner up and start a company in a new industry.”
He took a meeting and learned a ton. Although he did not end up going into business with that person, he was hooked on the concept.
“I looked at that ad, and $10,000 later, we had a company,” Ebanks said.
He learned what he needed and ended up opening his own MCA business shortly after in New Jersey, finding he loved setting up syndicated MCA deals.
“I did some research, opened an office in New Jersey, secured a manager to run the operation, and we started brokering deals and learning about syndication.”
He worked with SFS Capital, now called Kapitus. He fell in love with the immediate gratification feedback of making deals, seeing returns on account receivables, and watching renewals come in. The business grew, but things were not always a straight climb to success.
“There was a point where things were not going well and I had to start a new company, find new parters and investors with a funding direct-only focus, and moved into my basement- my wife was unhappy with that. I started hiring people, processors, underwriters, and ISO managers in my basement,” Ebanks said. “At one point, she said, ‘Okay, this is enough. Ten strangers are coming into my house every day, you’ve got to get an office,’ so we secured an office in New York. And that’s when things took off in 2017.”
At that point, Ebanks had shifted his business model from securing deals to funding them all his own, using capital he raised. Ebanks said that being a broker partnered with Kapitus was great, but he wanted to grow and run his business entirely. The best way to do that was through ISO management, Ebanks said. Ebanks let the direct sales team phase out and he hired ISO managers, learning the ISO business as he went.
“So fast forward now: We have over five ISO managers, and we’re funding about $12 million a month,” Ebanks said. “It’s been a phenomenal journey and the most rewarding thing I’ve ever done in my life; I’m not shy to share how exciting every day is to me, and how other than my family and my kids and God, this is the most important thing my life.”
For brokers looking to get started in the industry, Ebanks has this advice to share: Don’t settle.
“Don’t settle, look for growth, and invest your money,” Ebanks said. “I always invested everything I could, 95%, every penny on the business. It matters especially at the beginning, the more you invest, don’t let it sit.”
That investment should go toward your business, your staff, and hiring. Ebanks said the more you invest, the bigger the bag, the more your firm would grow, and your employees will grow with you. Helping employees will mean they will eventually leave, but in Ebanks’ experience treating employees right creates partners.
“Some of them now are partners, and the employee-employer relationship is always more partnership,” Ebanks said. “Some of them own their own companies now, and we help each other out. If they have a big deal, they say: ‘Frank do you want to take $50,000 out of this deal?’ I say yea I trust you. I’ve known you for years.”
Now that he’s on track to grow with recurring customers, seeing some merchants come back to renew twenty times since 2016, Ebanks sees a possible bright future for Spartan Capital: becoming a chartered online bank.
“It is an alternative lending space but to offer the best products to people,” Ebanks said. “I think at the end of the day, and we need all the resources we can get, the next chapter is to apply and secure an online bank charter, it’s the future of the fintech industry.
“Why do people like doing business with us versus a bank? Some of them can do business with banks, but they choose to use us because they have direct access to us after 6 pm, they could call us Saturday, they can call us on a Sunday,” Ebanks said. “A great relationship that they can never get from a bank. I want to bring what we do in MCA to the banking industry to serve people that want banking products, but I want to give them that MCA experience.”
State of Fintech Lending in Canada Report Reveals Key Information for Lenders
November 23, 2020
Smarter Loans, Canada’s loan comparison giant, has published its 3rd annual State of Fintech Lending report.
“As Canadians stayed home longer, adoption of fintech products has accelerated dramatically,” the report says, accelerating trends that had already been developing for years. The data is based on survey results submitted by nearly 2,600 fintech lending customers.
While there are dozens of important takeaways, respondents indirectly signaled how valuable it is to be among the brands that are found first by borrowers.
That’s because loan applicants said that they researched fewer lenders than ever before (35% only researched 1 or 2 lenders before applying) and they spent less time researching lenders than ever before (31% said they spent less than 1 hour researching). Furthermore, 51% of respondents said that they only applied with a single provider.
This approach worked. Of those that got approved, 89% of respondents said that they were satisfied or very satisfied with their loan provider.
The trend should signal to lenders that borrowers may simply come to expect a satisfactory experience regardless of where they apply and that there is tremendous value in simply being the first 1-2 lenders that a prospective borrower considers.
And hint hint, it pays to be easily discoverable online. Fifty eight percent of respondents said they discovered their loan provider through online search.
Click here to view the full survey results in Smarter Loans’ official State of Fintech Lending.
Franklin Capital Group Has Been Acquired
October 23, 2020
This month, Franklin Capital Group was acquired by Wing Lake Capital Partners with the help of Rocky Mountain Bank. Franklin Capital will change its name and add funding capability- but the entire team will stay on. CEO Shaya Baum was happy to announce the deal, explaining that the firm would use acquisition funds to create more deals and continue to grow.
“It gives us the ability to fund many deals that are outside of our box previously,” Baum said. “We’re going to be launching a couple of sister funds alongside what we currently have and scale the business.”
Franklin Capital was founded in 2012 as an equity fund for companies in financial trouble during, before, or post-bankruptcy. The firm discovered a market for refinancing MCA advances, finding companies that should have never obtained cash advances in the first place. Franklin Capital began offering a product to refinance cash advances through traditional loans.
“We buy out the cash advance deals,” Baum said. “In fact, most if not all of our deals come from brokers in the cash advance industry saying ‘Hey can you get us out of these deals?'”
Baum said that his firm had seen a continually growing demand for capital this year.
“I know the cash advance companies have gotten killed, but we’ve actually had the opposite problem,” Baum said. “We don’t do one-off restaurant [advances.] We’re dealing with companies that are larger, more established: they’ve all pivoted into industries that have grown during this period of time.”
IN DEFAULT OR ABOVE WATER: How PPP Saved or Didn’t Save America
July 31, 2020
Kristy Kowal, a silver medalist in the 200-meter breast stroke at the 2000 Olympic games in Australia, had recently relocated to Southern California and embarked on a new career when the pandemic shutdown hit in March.
After nearly two decades as a third-grade teacher in Pennsylvania, Kowal was able to take early retirement in 2019 and pursue her dream job. At last, she was self-employed and living in Long Beach where she could now devote herself to putting on swim clinics, training top athletes, and accepting speaking engagements. “I’ve been building up to this for twenty years,” she says.
But fate had a different idea. The coronavirus not only grounded her from travel but closed down most swimming pools. At first, she tried to collect unemployment compensation. But after two months of calling the unemployment office every day, her claim was denied. “‘Have a great day,’ the lady said, and then she hung up,” Kowal reports. “She wasn’t rude; she just hung up.”
Then, in June, the former Olympian heard from friends about Kabbage and the Paycheck Protection Program. Using an app on her smart phone, Kowal says, she was able to upload documents and complete the initial application in fewer than 20 minutes. A subsequent application with a bank followed and within a week she had her money.
“I was down to ten cents in my checking account,” says Kowal, who declined to disclose the amount of PPP money for which she qualified, “and I’d begun dipping into my savings. This gives me the confidence that I need to go back to my fulltime work.”
Kowal is one of 4.9 million small business owners and sole proprietors who, according to the U.S. Small Business Administration, has received potentially forgivable loans under the Paycheck Protection Program. The PPP, a safety-net program designed to pay the wages of employees for small businesses affected by the coronavirus pandemic, is a key component of the $1.76 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Since the U.S. Congress enacted the law on March 27, the PPP has been renewed and amended twice. It’s now in its third round of funding and Congress is weighing what to do next.
Kowal’s experience, meanwhile, is also a wake-up call for the country on the prominent role that both fintechs like Kabbage as well as community and independent banks, credit unions, non-banks and other alternatives to the country’s biggest banks play in supporting small business. Before many in this cohort were deputized by the SBA as full-fledged PPA lenders, a significant chunk of U.S. microbusinesses – especially sole proprietorships — were largely disdained by the brand-name banks.
“After the first round,” notes Karen Mills, former administrator of the U.S. Small Business Administration and a senior fellow at the Harvard Business School, “more institutions were approved that focused on smaller borrowers. These included fintechs and I have to say I’ve been very impressed.”
Among the cadre of fintechs making PPP loans – including Funding Circle, Intuit Quickbooks, OnDeck, PayPal, and Sabre — Kabbage stands out. The Atlanta-based fintech ranked third among all U.S. financial institutions in the number of PPP credits issued, its 209,000 loans trailing only Bank of America’s 335,000 credits and J.P. Morgan Chase’s 260,000, according to the SBA and company data. Kabbage also reports processing more than $5.8 billion in PPP loans to small businesses ranging from restaurants, gyms, and retail stores to zoos, shrimp boats, beekeepers, and toy factories.
To reach businesses in rural communities and small towns, Kabbage collaborated with MountainSeed, an Atlanta-based data-services provider, to process claims for 135 independent banks and credit unions around the U.S. The proof of the pudding: Eighty-nine percent of Kabbage’s PPP loans, says Paul Bernardini, director of communications at Atlanta-based Kabbage, were under $50,000, and half were for less than $13,500.
The figures illustrate not only that Kabbage’s PPP customers were mainly composed of the country’s smaller, “most vulnerable” businesses, Bernardini asserts, but the numbers serve as a reminder that “fintechs play a very important, vital role in small business lending,” he says.
The helpfulness of such financial institutions contrasts sharply with what many small businesses have reported as imperious indifference by the megabanks. Gerri Detweiler, education director at Nav, Inc., a Utah-based online company that aggregates data and acts as a financial matchmaker for small businesses, steered AltFinanceDaily toward critical comments about the big banks made on Nav’s Facebook page. Bank of America, especially, comes in for withering criticism.
“Bank of America wouldn’t even take my application,” one man wrote in a comment edited for brevity. “I have three accounts there. They are always sending me stuff about what an important client I am. But when the going got tough, they wouldn’t even take my application. I’m moving all my business from Bank of America.”
Lamented another Bank of America customer: “I was denied (PPP funding) from Bank of America (where) I have an individual retirement account, personal checking and savings account, two credit cards, a line of credit for $20.000, and a home mortgage. Add in business checking and a business credit card. Yesterday I pulled out my IRA. In the next few days I’m going to change to a credit union.”
Many PPP borrowers who initially got the cold shoulder from multi-billion-dollar conglomerate banks have found refuge with local — often small-town — bankers and financial institutions. Natasha Crosby, a realtor in Richmond, Va., reports that her bank, Capital One, “didn’t have the applications available when the Paycheck Protection Program started” on April 6. And when she finally was able to apply, she notes, “the money ran out.”
Crosby, who is president of Richmond’s LGBTQ Chamber of Commerce, is media savvy and was able to publicize her predicament through television appearances on CNN and CBS, as well as in interviews with such publications as Mother Jones and Huffington Post. A “friendly acquaintance,” she says, referred her to Atlantic Union Bank, a Richmond-based regional bank, where she eventually received a PPP loan “in the high five figures” for her sole proprietorship.
“It took almost two months,” Crosby says. “I was totally frozen out of the program at first.”
Talibah Bayles heads her own firm, TMB Tax and Financial Services, in Birmingham, Ala. where she serves on that city’s Small Business Council and the state’s Black Chamber of Commerce. She told AltFinanceDaily that she’s seen clients who have similarly been decamping to smaller, less impersonal financial institutions. “I have one client who just left Bank of America and another who’s absolutely done with Wells Fargo,” she says. “They’re going to places like America First Credit Union (based in Ogden, Utah) and Hope Credit Union (headquartered in Jackson, Miss.). I myself,” she adds, “shifted my business from Iberia Bank.”
Main Street bankers acknowledge that they are benefiting from the phenomenon. “In speaking to our industry colleagues,” says Tony DiVita, chief operating officer at Bank of Southern California, an $830 million-asset community bank based in San Diego, “we’ve seen that many of the big banks have slowed down or stopped lending small-dollar amounts that were too low for them to expend resources to process.”
At the same time, DiVita says, his bank had made 2,634 PPP loans through July 17, roughly 80% of which went to non-clients. Of that number, some 30% have either switched accounts or are in the process of doing so. And, he notes, the bank will get a second crack at conversion when the PPP loan-forgiveness process commences in earnest. “Our guiding spirit is to help these businesses for the continuation of their livelihoods,” he says.
Noah Wilcox, chief executive and chairman of two Minnesota banks, reports that both of his financial institutions have been working with non-customers neglected by bigger banks where many had been longtime customers. At Grand Rapids State Bank, he says, 26% of the 198 PPP applicants who were successfully funded were non-customers. Minnesota Lakes Bank in Delano, handled PPP credits for 274 applicants, of whom 66% were non-customers.
“People who had been customers forever at big banks told us that they had been applying for weeks and were flabbergasted that we were turning those applications around in an hour,” says Wilcox, who is also the current chairman of the Independent Community Bankers of America, a Washington, D.C.-based trade group representing community banks.
Noting that one of his Gopher State banks had successfully secured funding for an elderly PPP borrower “who said he had been at another bank for 69 years and could not get a telephone call returned,” Wilcox added: “We’ve had quite a number of those individuals moving their relationships to us.”
For Chris Hurn, executive director at Fountainhead Commercial Capital, a non-bank SBA lender in Lake Mary, Fla., the psychic rewards have helped compensate for the sometimes 16-hour days he and his staff endured processing and funding PPP applications. “It’s been relentless,” he says of the regimen required to funnel loans to more than 1,300 PPP applicants, “but we’ve gotten glowing e-mails and cards telling us that we’ve saved people’s livelihoods.”
Yet even as the Paycheck Protection Program – which only provides funding for two-and-a-half months – is proving to be immensely helpful, albeit temporarily, there is much trepidation among small businesses over what happens when the government’s spigots run dry. The hastily contrived design of the program, which has relied heavily on the country’s largest financial institutions, has contributed mightily to the program’s flaws.
“The underbanked and those who don’t have banking relationships were frozen out in the first round,” says Sarah Crozier, director of communications at Main Street Alliance, a Washington D.C.-based advocacy organization comprising some 100,000 small businesses. “The new updates were incredibly necessary and long overdue,” she adds, “but the changes didn’t solve the problem of equity in access to the program and whom money is flowing to in the community.”
Professor David Audretsch, an economist at Indiana University’s O’Neill School of Public and Environmental Affairs and an expert on small business, says of PPP: “It’s a short-term fix to keep businesses afloat, but it missed in a lot of ways. It was not well-thought-out and a lot of money went to the wrong people.”
The U.S. unemployment rate stood at 11.1% in June, according to the most recent figures released by the Bureau of Labor Statistics, about three times the rate of February, just before the pandemic hit. The BLS also reported that 47.2% of the U.S. population – nearly half –was jobless in June. Against this backdrop, SBA data on PPP lending released in early July showed that a stunning array of cosseted elite enterprises and organizations, many with close connections to rich and powerful Washington power brokers, have been feasting on the PPP program.
In a stunning number of cases, the program’s recipients have been tony Washington, D.C. law firms, influential lobbyists and think tanks, and even members of Congress. Many businesses with ties to President Trump and Trump donors have also figured prominently on the SBA list of those receiving largesse from the SBA.
Businesses owned by private equity firms, for which the definition of “small business” strains credulity, were also showered with PPP dollars. Bloomberg News reported that upscale health-care businesses in which leveraged-buyout firms held a controlling interest, were impressively adept at accessing PPP money. Among this group were Abry Partners, Silver Oak Service Partners, Gauge Capital, and Heron Capital. (Small businesses are generally defined as enterprises with fewer than 500 employees. The SBA reports that there are 30.7 million small businesses in the U.S. and that they account for roughly 47% of U.S. employment.)
Boston-based Abry Partners, which currently manages more than $5 billion in capital across its active funds, merits special mention. Among other properties, Abry holds the largest stake in Oliver Street Dermatology Management, recipient of between $5 million and $10 million in potentially forgivable PPP loans. Based in Dallas, Oliver Street ranks among the largest dermatology management practices in the U.S. and, according to a company statement, boasts the most extensive such network in Texas, Kansas and Missouri.
Meanwhile, the design of the program and the formula for the looming forgiveness process is proving impractical. As it currently stands, loan forgiveness depends on businesses spending 60% of PPP money on employees’ wages and health insurance with the remaining 40% earmarked for rent, mortgage or utilities.
Many businesses such as restaurants and bars, storefront retailers and boutiques – particularly those that have shut down — are preferring to let their employees collect unemployment compensation. “Business owners had a hard time wrapping their heads around the requirement of keeping employees on the payroll while they’re closed,” notes Detweiler, the education director at Nav. “They have other bills that have to be paid.”
The forgiveness formula remains vexing for businesses where real estate costs are exorbitant, particularly in high-rent cities such as New York, Boston, Washington, D.C., San Francisco, and Chicago. Tyler Balliet, the founder and owner of Rose Mansion, a midtown Manhattan wine-bar promising an extravagant, theme-park experience for wine enthusiasts, says that it took him a month and a half to receive almost $500,000 from Chase Bank. Unfortunately, though, the money isn’t doing him much good.
“I have 100 employees on staff, most of whom are actors,” he says. “We shut down on March 13. I laid off 95 employees and kept just a few people to keep the lights on.”
At the same time, his annual rent tops $1 million and the forgivable amount in the PPP loans won’t even cover a month’s rent. “I haven’t paid rent since March and I’m in default,” Balliet says. “Now I’m just waiting to see what the landlord wants to do.”
Like many business owners, Balliet financed much of his venture with credit card debt, which creates an additional liability concern, notes Crozier of the Main Street Alliance. “It’s very common for borrowers to have signed personal guarantees in their loans using their credit cards,” she says. “As we get closer to the funding cliff and as rent moratoriums end,” she adds, “creditors are coming after borrowers and putting their personal homes at risk.”
Mark Frier is the owner of three restaurants in Vermont ski towns, including The Reservoir — his flagship — in Waterbury. In toto, his eateries chalked up $6.5 million in combined sales in 2019. But 2020 is far different: the restaurants have not been open since mid-March and he’s missed out on the lucrative, end-of-season ski rush.
Consequently, Frier has been reluctant to draw down much of the $750,000 in PPP money he’d secured through local financial institutions. “We could end up with $600,000 in debt even with the new rules,” Frier says, adding: “We live off very thin margins. We need grants not loans.”
As the country recorded 3.7 million confirmed cases of coronavirus and more than 141,000 deaths as of mid-July, PPP money earmarked by businesses for health-related spending was not deemed forgivable. Yet in order to comply with regulations promulgated by the Occupational Safety and Health Administration and mandates and ordinances imposed by state and local governments, many establishments will be unable to avoid such expenditures.
“What we really needed was a grant program for companies to pivot to a business environment in a pandemic,” says Crozier. She cites the necessity businesspeople face of “retrofitting their businesses, buying masks, gloves and sanitizers and cleaning supplies, restaurants’ taking out tables and knocking down walls, installing Plexiglass shields, and improving air filtration systems.”
Meanwhile, as Covid-19 was taking its toll in sickness and death, the economic outlook for small business has been looking dire as well. The recent U.S. Census’s “Pulse Survey” of some 885,000 businesses updated on July 2 found that roughly 83% reported that Covid-19 pandemic had a “negative effect on their business. Fully 38% of all small business respondents, moreover, reported a “large negative effect.”
Amid the unabated spikes in the number of coronavirus cases and the country’s grave economic distress, PPP recipients are faced with the unsettling approach of the PPP forgiveness process. As Congress, the SBA, and the U.S. Treasury Department continue to remake and revise the rules and regulations governing the program, businesses are operating in a climate of uncertainty as well. Currently, the law states that the amount of the PPP loan that fails to be forgiven will convert to a five-year, one-percent loan — a relaxation in terms from the original two-year loan which is not necessarily cheering recipients.
“One of the biggest problems with PPP is that the rule book has been unclear,” frets Vermont restaurateur Frier, glumly adding: “This is not even a good loan program.”
Ashley Harrington, senior counsel at the Center for Responsible Lending, a research and policy group based in Durham, N.C., argued in House committee testimony on June 17, that there ought to be automatic forgiveness for PPP loans under $100,000. Such a policy, she declared, “would likely exempt firms with, on average, 13 or fewer employees and save 71 million hours of small business staff time.”
She also said, “The smallest PPP loans are being provided to microbusinesses and sole proprietors that have the least capacity and resources to engage in a complex (forgiveness) process with their financial institution and the SBA.”
William Phelan, president of Skokie (Ill.)-based PayNet, a credit-data services company for small businesses which recently merged with Equifax, sounded a similar note. Observing that there are some 23 million “non-employer” small businesses in the U.S. with fewer than three employees for whom the forgiveness process will likely be burdensome, he says: “Estimates are that it will cost businesses a few thousand dollars just to get a $100,000 loan forgiven. It’s going to involve mounds of paper work.”
The country’s major challenge now will be to re-boot the economy, Phelan adds, which will require massive financing for small businesses. “The fact is that access to capital for small businesses is still behind the times,” Phelan says. “At the end of the day, it took a massive government program to insure that there’s enough capital available for half of the U.S. economy” during the pandemic.
For his part, Professor Audretsch fervently hopes that the country has learned some profound lessons about the need to prepare for not just a rainy day, but a rainy season. The pandemic, he says, has exposed how decades of political attacks on government spending for disaster-preparedness and safety-net programs have left the U.S. exposed to unforeseen emergencies.
“We’re seeing the consequence of not investing in our infrastructure,” he says. “That’s a vague word but we need a policy apparatus in place so that the calvary can come riding in. This pandemic reminds me a lot of when Hurricane Katrina hit New Orleans,’ he adds. “The city paid a heavy price because we didn’t have the infrastructure to deal with it.”
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.”
Maxim Commercial Capital Funds Deals in 30 States During 2Q 2020
July 16, 2020Maxim Commercial Capital is pleased to report it funded hard asset-secured financings for small and mid-sized businesses (SMBs) in 30 states across the United States during the second quarter of 2020. After pivoting quickly in March to safer-at-home working conditions for its 30+ team members, Maxim experienced a steady increase in applications from equipment brokers and vendors for their borrowers with challenged credit. Maxim lends $10,000 to $3,000,000 to SMBs nationwide secured by heavy equipment and real estate to facilitate asset purchases, working capital and to refinance expensive short term debt.
“Maxim was founded during the Great Recession of 2008,” noted Behzad Kianmahd, Chairman and CEO. “We are applying our experiences gained during that time to overcome today’s extraordinary economic challenges and long term uncertainty caused by the COVID-19 pandemic. We have reaffirmed our commitment to finance SMBs, which are the backbone of our economy, refreshed our underwriting standards, and are continually improving our infrastructure by investing in technology and communication tools for the benefit of our customers, vendors, brokers and team members.”
During the second quarter, Maxim received numerous applications from business owners with strong credit but negative cash flow due to the economic downturn. Funded transactions for such borrowers included $95,000 secured by a 2019 Mack GR64F Tri-Axle Dump Truck for a growing landscaping company in New Jersey; $42,500 for a seasoned contractor’s purchase of a 2014 Caterpillar 312E Hydraulic Excavator; and, $29,000 to enable a business started up by seasoned contractors to purchase a 2020 Reinert ZR Concrete Pump.
Buyers of used class 8 trucks faced numerous challenges during the second quarter, ranging from lenders shutting down without warning to closed DMVs. Maxim successfully funded deals across the country, including $26,500 for a California-based long-haul truck owner-operator to purchase a 2017 Volvo 780; $20,800 for an Ohio-based transportation company to purchase a 2017 Freightliner Cascadia; and, $23,000 for a Texas-based owner-operator to purchase a 2016 Freightliner Cascadia to replace a truck with mechanical issues.
“We are humbled and encouraged by our team’s commitment to positively impact our customers’ future success, and by our customers’ continuous effort to make tough but rational decisions to stay in business during these difficult times,” commented Michael Kianmahd, Executive Vice President. “Based on our experience over the past few months, we are confident that SMBs across the nation will contribute substantially to the nation’s recovery from the biggest economic shock since The Great Depression.”
About Maxim Commercial Capital
Maxim Commercial Capital helps small and mid-sized business owners seize opportunity by providing financing in amounts up to $3,000,000 secured by heavy equipment and real estate. Maxim facilitates equipment purchases, provides working capital and refinances debt for companies across all industries located nationwide. Through Maxim’s tailored financing programs, businesses unlock capital tied up in underleveraged assets, often replacing expensive short-term debt and daily repayment working capital loans with longer term capital. As a leading provider of transportation equipment finance, Maxim funds up to 75% of the acquisition cost of class 8 and class 6 trucks, trailers and reefers for owner-operators and small businesses. Learn more at www.maximcc.com or by calling 877.776.2946.
Business Loan Broker “The Tyrant” Pleads Guilty
June 29, 2020
The owner of a Long Island business loan brokerage accused of orchestrating an advance fee loan scheme, pled guilty this month. Demetrios Boudourakis, known in his brief MMA fighting career as The Tyrant, pled guilty to the top charge of grand larceny in the 2nd degree.
Boudourakis was arrested last year after joint law enforcement efforts by the Suffolk and Nassau police and sheriff’s departments, New York State Police, the FBI and the Drug Enforcement Administration, had been monitoring his company’s business for months. According to the Suffolk County District Attorney, the investigation revealed evidence that Boudourakis offered loans to his targets in exchange for advance fees, and then collected the fees without providing the loans. Once he and his employees had received the advance fees, they would cease contact with the victims. The scheme was determined to have generated stolen proceeds in excess of $2 million.
His sentencing date is on September 4th, where he is expected to serve between 5 and 10 years in prison.
Separately, pending federal drug charges against him were recently dropped.
Good Internet Connection: A Recap of Broker Fair Virtual’s Debut
June 17, 2020
Last week’s Broker Fair Virtual was the first of its kind for the industry. The day-long event offered talks and networking, just like the in-person event, albeit without the catering service and open bar. Offering a digital space that included a virtual auditorium, networking lounge, expo hall, and individual company booths, the event attempted to recreate the experience of connecting and mingling with the rest of the industry, as much as was possible.
Kicking off with a Matrix-inspired introduction to the virtual space led by alternative finance’s version of Neo’s mentor, Mur-pheus (Murray as Morpheus), the show then went in numerous directions, with panels and talks covering a variety of topics and sectors.
Funding Metrics’ David Frascella took to the virtual stage to talk about how his company and the industry at large have been getting through the pandemic; what’s to come for America was up for discussion with Scott Rasmussen, the veteran pollster, who elaborated on how business could be effected by the upcoming presidential election; the future of combining people with data was debated by figures from Become, Elevate Funding, and Ocrolus; Canada’s lending situation and prospects were talked through in Covid and Canadian Credit;The new normal was discussed by NYC’s Fintech Women; and John Henry, an entrepreneur and star of VICELAND’s ‘Hustle,’ spoke of his experience running businesses and what made his story a success.
As well as this selection of talks, another standout was the cannabis panel. Led by a number of industry veterans, which broke down the difference in funding marijuana-based companies compared to other deals, and what could be down the road for the industry as more states consider legalization.
National Funding’s CRO, Justin Thompson, held an extended Q&A session, fielding queries about how National has been faring through these times and what its approaches are as the economy begins to open back up.
How long-term is long-term for the coronavirus’s impact? Are SBA deals the way to go? Does the industry need to go further with its adaption to this new normal? All these questions were asked and answered in The Great Debate, a panel made up of industry figures from various backgrounds.
And brokers’ futures were considered by Lendio’s Brock Blake, United Capital Source’s Jared Weitz, National Business Capital & Service’s James Webster, and The Watson Group’s Gerald Watson. Here, the idea of a recovery, how each struggled through March and April, and PPP were all debated by the panelists, with perspectives of what’s to come leaning both ways.
There’ll be an evolution of new industries and how we do business,” Gerald Watson noted in his closing words, “just look at this conference for example.”
There was no lobby to find brokers and funders hashing out deals in relative privacy away from the expo hall, instead this was replaced by private messages exchanged. Rather than line up for some chicken wings, people chowed down to whatever was in their home on that day. And instead of gathering around a bar and finishing the day after the final talk, attendees cracked something at their desk and chatted it up in the networking lounge, recalling previous events and what was once taken for granted: the ability to connect effortlessly.
The coronavirus continues to physically keep people apart, but for one day last week the industry was able to come together and network, make deals, and gain insight; albeit in a different way, internet connections providing.
