Loan Overload? Online Lenders Offer Business Debt Consolidation and Refinancing

By Teddy Nykiel

If you’re up to your ears in business debt — whether it’s from one high-interest loan or three — it’s time to re-evaluate.

Having small-business loans or merchant cash advances with annual percentage rates in the double or triple digits can suffocate your cash flow. Refinancing and business debt consolidation are two ways you can cut your interest rates, and online lenders might be able to help. Here’s what you need to know:

Business debt consolidation vs. refinancing

When you refinance business debt, you take out a lower-interest loan to pay off one that has higher interest. Consolidation combines several loans or merchant cash advances into one loan. Of businesses that applied for financing in the first half of 2014, 15% needed debt consolidation or refinancing, according to a survey by the Federal Reserve Banks of New York, Atlanta, Cleveland and Philadelphia.

An increasing number of borrowers with bad credit have multiple high-interest small-business loans and merchant cash advances. This is known as loan stacking and can happen when borrowers fail to qualify for a large, low-interest small-business loan. To compensate, they take out multiple smaller loans with high interest. Jerry Silberman, founder of debt-restructuring service Corporate Turnaround, has seen small-business owners with as many as 10 merchant cash advances.

If you have multiple high-interest small-business loans or merchant cash advances, there’s no way you will be able to qualify for a traditional bank loan to refinance, Silberman says. But many online small-business loans can be used for business debt consolidation and refinancing.

We’ve listed some of your best options. To compare all your loan choices, check out our small-business loans page, where we’ve listed loans based on what you need to qualify.

For businesses that can qualify for the lowest rates: SmartBiz

SmartBiz is an online platform that connects business owners with loans backed by the U.S. Small Business Administration. SBA loans are among the least expensive loan options. You need good credit and a healthy business, and you must meet SBA requirements to qualify for SmartBiz. The lender has noticed more small-business owners using SmartBiz loans to refinance debt than in the past, General Manager Evan Singer said in an email.

SmartBiz:

• Loan amount: $30,000 to $350,00
• APR: 7% to 8%
• Loan term: 10 years
• Approval time: Within seven days of submitting application
• Read our SmartBiz review

For businesses that want a line of credit and refinancing: Dealstruck

Online lender Dealstruck offers a variety of financing products, including small-business term loans, asset-based lines of credit and inventory lines of credit. About one-third of Dealstruck borrowers use the money for debt refinancing, says Chief Strategy Officer Candace Klein. For those business owners, the lender typically extends a term loan to pay off the existing debt and a line of credit to cover ongoing working capital needs, Klein says.

Dealstruck:

• Loan amount:$50,000 to $250,000
• APR: 11% to 28%
• Loan term: 6 months to 4 years
• Approval time:Prequalification in minutes, offer letter in two to three days, average of 10 days to funding
• Read our Dealstruck review

For businesses with at least 3 employees: Fundation

Founded in 2011, Fundation offers online small-business loans with terms of up to four years. The lender has a minimum requirement that most lenders don’t: You need to have at least three employees (including yourself) to be eligible. Up to one-fourth of Fundation borrowers use their loans for debt refinancing, a spokesman for the lender said in an email.

Fundation:

• Loan amount: $20,000 to $500,000
• APR: 8% to 30%
• Loan term: 1 to 4 years
• Approval time: Funding as soon as 3 days after submitting application
• Read our Fundation review

For business owners with a 620 personal credit score or higher: Funding Circle

Funding Circle is a peer-to-peer lender offering small-business loans with terms of up to five years. The lender requires borrowers to have at least a 620 personal credit score, slightly higher than the 600 minimum that Dealstruck and Fundation require. (SmartBiz doesn’t have a minimum credit score but typically doesn’t accept borrowers with scores lower than 600.) Although most Funding Circle borrowers use the loan money to grow their businesses, many also use it to refinance debt, Funding Circle’s head of communications, Liz Pollock, said by email.

Funding Circle:

• Loan amount: $25,000 to $500,000
• APR: 7% to 26%
• Loan term: 1 to 5 years
• Approval time: Less than 10 days
• Read our Funding Circle review

The bottom line

If you’re considering business debt consolidation or refinancing, the online loans listed above might be options. Debt refinancing means taking out a new loan to pay off an existing loan at a lower interest rate. Business debt consolidation is a type of refinancing, but it refers specifically to using one new, lower-interest loan to pay off multiple higher-interest loans.

If you meet the minimum requirements, apply for all of these online loans and choose the one that offers you the lowest APR. Unlike with credit cards, applying for multiple loans won’t hurt your credit score because the credit bureaus recognize the value of shopping around for the best rate. As long as you apply for the small-business loans within a short time frame (about two weeks), all of the credit pulls will count as just one hard inquiry.

Find and compare small-business loans

NerdWallet has come up with a list of the best small-business loans to meet your needs and goals. We gauged lender trustworthiness, market scope and user experience, among other factors, and arranged the lenders by categories that include your revenue and how long you’ve been in business.


Late on a Loan Payment? How To Do Damage Control

It can happen to the savviest of business owners. Unanticipated expenses arise. A customer doesn’t pay on time. External events like the weather drive down sales. As a result, you might find yourself unable to make a loan payment on time.

Late payments can hurt your personal credit score and your business standing with creditors, even resulting in collection efforts in some cases. If you find yourself in this position, follow these 3 steps to minimize the damage and get back on track.

1. Communicate With The Lender.

The most important thing you can do if you know you’re going to be late on a loan payment is to communicate that to the lender before the payment deadline. A lot of borrowers mistakenly avoid the lender. According to Kristin King, Vice President of Rockford Bank and Trust, “There are ways that we can help customers that are experiencing cash flow difficulties, but I caution them to communicate with me early.” Keeping the line of communication open allows you to work with the lender to come up with a repayment plan and possibly avoid consequences, such as penalty interest rates and damage to your credit score.

First, Identify the Problem

The first thing the lender will want to know is why you’re late. Is it a temporary problem? Or has there been a fundamental change in your business that will cause you to continue to miss payments? Whatever the cause, be straightforward about why you will be late on the payment. That will calm the lender’s anxiety, so they won’t be as quick to report the late payment to credit bureaus or jack up your APR.

Then, Suggest a Solution

The next step is to explain to the lender what type of repayment modifications will help you get back on track. Sam Graziano, CEO of online business lender Fundation, says the following options may be available:

1. Defer and repay. For example, if you’re late on a $600 payment, the lender may allow you skip (defer) the payment this month and tack on $200 to your next 3 months’ payments.

2. Forbearance agreements to pay smaller amounts in each installment for the remainder of the loan.

3. Pay interest only for 60-90 days.

There’s no guarantee that a lender will offer you a payment plan, but they will usually be understanding if you haven’t missed payments in the past. If the lender offers a deferral, keep in mind that the missed payment will be added to the loan balance, so you’ll be paying more interest in the long run.

If you can reach some kind of consensus with the lender, the lender most likely will not report a one-time late payment to the credit bureaus. However, if you’re regularly late or are more than 30 days late without a repayment plan in place, most lenders will report you to the credit bureaus. This can hurt your personal and business credit scores. In addition, if you go 90 days or more without paying, the lender may initiate collection efforts (exact time frames for credit bureau reporting and collections depend on your loan agreement).

2. If You Anticipate Missing Payments, Consider Refinancing.

Missing a loan payment every once in a blue moon isn’t too big a deal, but if it happens regularly, that’s a sign that you can’t afford your monthly payments. In that case, you may want to refinance your business loan before you miss more payments.

Refinancing basically allows you to pay off your loan by taking out a new loan with a lower interest rate and/or longer repayment term. Typically, lenders will allow you to refinance only if you have a good credit score, so you should try to refinance before missing too many payments. If you’re interested in refinancing, a good place to start is the lender that gave you the original loan.

Refinancing has pros and cons that should be carefully evaluated. The primary advantage is that you get lower monthly payments if you refinance when there are historically low interest rates (like right now). You also get a longer repayment term to spread out your payments. The refinancing fees are the primary disadvantage, as they can sometimes displace any savings you get from lower monthly payments. In addition, you may be charged a prepayment penalty for refinancing your loan, which could again wipe out any savings you get from lower monthly payments.

If you can refinance at the right time and without paying a lot of fees, that can lower your monthly payments and save you money on interest.

3. Don’t Be Late Again.

A single late payment won’t do much harm, but if you regularly miss payments, lenders will report that to the credit bureaus. In addition, lenders will charge a higher penalty APR and late fees for tardy borrowers. Paying on time going forward will help fix those problems.

Minimize Damage to Your Credit Score

According to Credit Karma, payment history accounts for about 35% of your credit score, making it one of the most important factors in calculating your score. A late payment can stay on your credit report for up to 7 years. However, by paying bills on time going forward, you can slowly lessen the impact. A good way to force yourself to stay on track is to set up automatic monthly loan payments. That encourages you to keeps expenses low and your bank account as full as possible.

Try to Get Rid of the Penalty APR and Late Fees

Late payments often trigger late fees or an increase in interest rates (called penalty APR). I recommend asking the lender if they can waive these penalties, particularly if this is your first ever late payment. Some lenders may have internal policies regarding penalty APR. For instance, many lenders will restore your original APR if you make a certain number of consecutive on-time payments (there is a law requiring lenders to restore your original APR after 6 consecutive on-time payments, but this law only applies to consumer credit cards, not to business loans).

Consider Changes to Your Business Finances

Even if this is your first time missing a loan payment, you should carefully examine your business finances and figure out what happened to prevent a repeat occurrence. There are some changes you might be able to make:

• Set aside some “emergency business funds” each month to use when unexpected events happen.

• Cut business costs and overhead wherever possible.

• Regularize your cash flow. In Kristin King’s experience, “most business owners experience timing issues between collecting on accounts receivable and the due date of payments.” By requiring upfront payment or enforcing payment deadlines, you can stabilize your cash flow. Doing business with habitually tardy clients could be hurting you more than helping you.

• Choose financing that suits your business. Some types of financing, such as invoice factoring, are specifically designed to stabilize cash flow. We can help you find financing that fits your business needs.

Making changes to the way you do business now will prevent problems in the future.

Bottom Line

It’s not the end of the world to be late on one loan payment, but it’s best to nip the problem in the bud so it won’t happen a second or a third time. Regain control by communicating with the lender, refinancing if the monthly payments are too high, and paying on time going forward. Selecting the right form of financing for your business is also key, and FitBizLoans can help you make an informed choice.


CT Corporation Announces Partnership with Fundation Group LLC to Provide Information to CT Customers About Small Business Loan Options

New York, NY – October 14, 2015 – Wolters Kluwer’s CT Corporation, a leading provider of business formation and legal compliance services, announced today a partnership with Fundation Group LLC, a New York City-based online commercial lender.

CT and Fundation customers will appreciate the connection between the companies, as each offers vital services for small businesses throughout the business lifecycle. “Like CT Corporation, Fundation provides critical services for small, growing businesses,” said Fundation Chief Executive Officer, Sam Graziano. “Businesses owners need everything from incorporation and guidance for growing their company, to financing for immediate and long term capital needs.”

CT supports businesses of all sizes, providing incorporation and registered agent services to startups, as well as business licensing and other compliance services to businesses in growth mode.  Fundation is an online direct lender providing the equivalent of bank loans - conventional, fixed rate term loans of up to $500,000 and terms up to 4 years.  Offering the product features of a bank loan, with the speed and efficiency of a technology company, Fundation provides customers with a simple borrowing experience with application to funding in as little as three business days. Fundation lends nationally to a broad range of small businesses, including healthcare providers, professional services firms, technical services and engineering firms, manufacturers, bars and restaurants, hospitality providers, and personal services companies like child day care and auto repair firms.

“Expanding a business and seeking capital go hand in hand,” said Jennifer Friedman, CMO of the small business segment of CT Corporation. “CT’s goal is to partner with our customers – bringing them the latest information to help them keep their businesses healthy and compliant throughout their entire business lifecycle.  That’s why it’s great that we can share information on Fundation as one funding option many customers could want to pursue.”

The partnership will allow customers of CT and Bizfilings (also a Wolters Kluwer brand), to more easily and efficiently acquire information on Fundation.  Interested customers may complete the loan application process with Fundation directly, to pursue the necessary funding for business opportunities such as expanding service offerings, making capital improvements, opening new locations, managing cash flow, and refinancing higher-cost debt. More information can be found on: https://ct.wolterskluwer.com/fundation and www.bizfilings.com/fundation


Regions Inks Unique Deal to Tap Booming Fintech Industry

Regions Financial Corporation has collaborated with financial technology or "Fintech" startup, Fundation Group LLC, to diversify its lending base. Regions will now be able to offer its lending products to Fundation Group's online customer base, comprising small businesses.

Regions had been looking for a prospective online partner since last year. Based on sources, the search finally ended with Fundation Group, since the company underwrites its own loans, as opposed to certain others like LendingClub Corporation that simply matches borrowers to lenders.

According to Regions, "20 percent of small business owners in the U.S. are already turning to online lenders to meet their credit needs". As such, Regions seeks to capitalize on this shift in customer preference. Moreover, the first-of-its-kind deal between a large full service bank and an online business lender will likely translate into an opportunity for Regions to grow loans and hence, revenues, on a steady as well as long-run basis.

Agreement in Detail

The agreement allows customers of Fundation Group to access Fintech's online loan application form directly through Regions' website.

Additionally, services of Fundation Group will facilitate quicker filing of loan applications for Regions' lending products. Notably, at Fundation Group, customers are able to execute loan application in less than 10 minutes, with such loans generally getting funded in 3 days.

Further, Fundation Group will underwrite fixed-rate installment loans up to $1 million, while all other types of loans valued above $1 million will be underwritten by Regions.

Growing Popularity of Fintech Companies

Notably, the distrust upon banks, post the 2008 financial crisis, has likely acted as a positive catalyst for these Fintech companies, which offer similar services on an alternative platform. At the same time, an ever-increasing demand for technology and less stringent regulatory requirements (compared with banks) has given rise to various Fintech start-ups, of late.

These online lenders are attractive to customers, given the increased transparency and enhanced personal experience offered by them. Customers are able to choose suitable products from a wide array of available options.

Driven by such popularity, the global Fintech industries have seen their investments tripling year over year to more than $12 billion in 2014. In fact, 25% of such investments (in terms of total value) have been made in lending-based companies.

What it Means for Regions

Regions has entered into an industry that is set to revolutionize the financial services sector in the future. According to The Goldman Sachs Group, Inc., the Fintech industry is predicted to eat away $4.7 trillion in revenues and $470 billion in profits from traditional Wall Street firms. As such, Regions is poised to benefit from the unique collaboration.

Moreover, access to a large online customer base will help the company further leverage its traditional banking operations. Besides, as mentioned earlier, it will lead to higher loans and improved revenues for the company.


Best Alternative Small Business Loans – 2015

By Chad Brooks, Business News Daily Senior Writer 

Here at Business News Daily, we know that businesses have diverse financial needs. We researched and reviewed dozens of alternative small business loans, and came up with the ones we think are best for a variety of business needs. Here is a roundup of our top picks and an explanation of how we chose them.

Want to learn more about small business loans? Here's a breakdown of our complete coverage:

  • Small Business Loan Guide
  • REVIEW: Best Alternative Lender for Working Capital Loans
  • REVIEW: Best Alternative Lender for Lines of Credit
  • REVIEW: Best Alternative Lender for Startup Loans
  • REVIEW: Best Alternative Lender for Merchant Cash Advances
  • REVIEW: Best Alternative Lender for Bad Credit Loans

Best Working Capital Loans: Fundation

Fundation offers conventional fixed-rate loansbetween $20,000 and $500,000, with annual percentage rates ranging from 7.99 to 29.99 percent. Applications can be filled out online in 10 minutes, and a final decision on approval takes place within 24 hours. To qualify, you must be in business for at least two years, as well as have at least three employees, an annual revenue of at least $100,000 and good personal credit. Fundation provides excellent customer service over the phone and via live chat. Go here for a full review of Fundation.

Best Lines of Credit: Kabbage

Kabbage specializes in small business lines of credit of between $2,000 and $100,000. Each time you draw against your line of credit, you have six months to pay it off. Instead of paying interest, however, you pay fees of between 1 and 12 percent each month. To apply, fill out an online application, and link the system to either your business bank account or an online service you are already using, such as QuickBooks. Kabbage's platform automatically reviews the data on those sites to determine if you meet its standards for a loan. The process typically takes just minutes to complete. Once approved, you have instant access to your loan. Go here for a full review of Kabbage.

Best Startup Loans: Accion

Accion is a nonprofit microlender that specializes in small business loans. It offers loans specifically for startup businesses that have been open for less than six months. Accion's loan amounts and minimum requirements vary by state. Some of the more common requirements are a minimum credit score of 575, sufficient cash flow and proof of income. Maximum loan amounts range from $10,000 to $100,000. Applications can be filled out online, with approval usually taking place within one month. Accion's loans, most of which have annual percentage rates starting at 10.99 percent, are repaid on a monthly basis over the length of the loan. Go here for a full review of Accion.

Best Merchant Cash Advances: RapidAdvance

RapidAdvance offers merchant cash advances of between 50 and 250 percent of your monthly credit card volume. You repay the loan by giving RapidAdvance a fixed percentage of your future card receipts until the loan is paid off. To qualify, you need to have been in business for at least three months, have at least $2,500 in monthly credit card receivables and have a physical location for your business. You can apply for the advance online or over the phone. The approval process can be completed in 24 hours, with funds becoming available within three days. Go here for a full review of RapidAdvance.

Best Bad Credit Loans: OnDeck

OnDeck offers fixed-rate loans of between $5,000 and $250,000. To qualify, you need a minimum credit score of 500 and annual revenue of at least $100,000, and you have to have been in business for at least one year. The loans have lengths ranging from three to 24 months and an average interest rate of 15 percent of your total loan amount. OnDeck loans are paid back on a daily or weekly basis. You can apply for a loan online or over the phone. Approval can be completed in just a few minutes, and funds will be deposited into your account within 24 hours. Go here for a full review of OnDeck.

Our Methodology

To determine the best alternative lenders, we started with a pool that included all of the lenders on the comprehensive list below. After some preliminary investigation, including a look at other best-pick lists and initial research into each one, we interviewed small business owners to discover new ones to add to our list. We also eliminated peer-to-peer lenders and online sites that match businesses with lenders, because they didn't fit into this year's best-pick categories.

Ultimately, we settled on 20 alternative lenders to research as best picks: Accion, American Business Credit Services, American Express, Balboa Capital, BFS Capital, CAN Capital, Dealstruck, Fora Financial, ForwardLine, Fundation, Kabbage, Merchant Advisors, Merchant Cash and Capital, OnDeck, PayPal, RapidAdvance, Rapid Capital Funding, Shield Funding, SnapCap and Square. (See below for the full list of alternative lenders.)

Next, we researched each lender by investigating the types of loans it offered, the amount of money that could be borrowed and for how long, the application and approval process, and repayment procedures. We also considered any general term rates that were listed on these lenders' websites. After narrowing the list to 14 final contenders, we contacted each lender's customer-service department by phone, and live chat if possible, and posed as business owners in order to gauge the type of support each one offered.

In all, we analyzed each lender based on the following factors:

  • Application and approval process
  • What it takes to qualify
  • How long it takes to get a loan
  • Loan amounts
  • Loan terms
  • Repayment process
  • Customer service
  • Better Business Bureau ratings and complaints
  • Online user reviews

It's important to note that our best picks were not selected based on the lender most likely to approve your business. Each lender evaluates businesses differently, and each business has a different financial makeup. Considering these factors, it would be impossible for us to try to determine any business's likelihood of securing a loan with any of these lenders. In addition, our review process did not fully examine specific loan interest rates. These are determined individually for each business based on the amount of money being borrowed, the loan term and the business's financial makeup. We did, however, consider any average rates that were provided.

Here is a full list of alternative lenders and a summary of what each company claims to offer. This alphabetical list also includes our best picks.

*Accion: Accion is a small business microloan lender. The company provides two types of loans — one for established businesses and the other for startups. Loan types, amounts and requirements vary by state. Each loan type is secured and features fixed interest rates. us.accion.org

Advance Funds Network: Advance Funds Network (AFN) offers a number of flexible business-financing options for small and medium-size businesses, including bad credit business loans, cash advances, invoice and purchase order factoring, and equipment leasing.  AFN's products are available to all businesses, regardless of credit score. advancefundsnetwork.com

American Express: American Express offers merchant financing to small businesses that accept American Express cards. The financing offered is a commercial loan, not a purchase of receivables or a cash advance. A business must repay the loan in full, together with the loan fee, regardless of its future credit and debit card charge volume. americanexpress.com

American Finance Solutions: American Finance Solutions purchases businesses' future credit card transactions, and advances that money to them. After receiving the advance, this lender deducts a fixed percentage of the business's daily credit card sales until the advance is paid in full. To qualify, businesses must have been in operation for more than a year and process at least $5,000 in credit card sales each month. americanfinancesolutions.com

Balboa Capital: Balboa Capital offers several small business loan products, including working-capital loans, franchise loans, equipment leasing, and flexible small business loans. The company makes quick credit decisions, offers loans of up to $250,000, processes quickly and has no restrictions on how businesses can use the money. balboacapital.com

Biz2Credit: Biz2Credit is an online marketplace for small business funding. The company connects small businesses in need of funding with lenders. Biz2Credit can help small businesses obtain a variety of loans, including SBA loans, equipment financing, business acquisition loans, commercial loans, lines of credit, franchise loans, real estate financing, disaster loans and merchant cash advances. biz2credit.com

BlueVine: BlueVine helps businesses free up cash trapped in their invoices by giving them an advance on the amount due. There are no hidden fees, paperwork or obligations. The application is completely online, and there are no long-term contracts or termination fees. Once a business is approved, a credit line will be set to be used as needed. bluevine.com

BoeFly: BoeFly is an online marketplace for small business loans. The site is a loan exchange that connects small business owners with more than 4,000 business lenders. BoeFly is a subscription service that does not charge any transaction fees. boefly.com

The Business Backer: The Business Backer specializes in small business financing. This lender offers a variety of loan types, including factoring, purchase financing, specialty financing, equipment leasing, traditional loans and lines of credit. To qualify, businesses must have been operating for at least a year, as well as have annual revenue of at least $150,000 and a personal credit score of 550 or higher. businessbacker.com

Business Credit & Capital: Business Credit & Capital specializes in offering retailers, restaurants and service businesses merchant cash advances. Business Credit & Capital purchases a percentage of future revenue, and advances those funds to businesses. There are no restrictions on how the money can be used. For businesses to repay the loan, the lender collects a daily percentage of sales. businesscreditandcapital.com

BFS Capital: BFS Capital offers both small business loans and merchant cash advances. The company provides small business loans of between $4,000 and $2 million to a wide range of industries, including restaurants, retail stores, service providers, manufacturers and wholesalers. bfscapital.com

CAN Capital: CAN Capital offers small business loans and merchant cash advances. Loans through CAN Capital range from $2,500 to $150,000, and mature in four to 24 months. No personal collateral is needed, and funds can be transferred in as little as two business days. cancapital.com

Capital for Merchants: Capital for Merchants is a business cash advance lender. Capital for Merchants pays for a business's future sales up front and gets paid back with a fixed percentage of daily credit card receipts, or via automatic debits from a checking account on a set schedule. Upon approval, funding is available within 72 hours. capitalformerchants.com

Corporate Business Lending: Corporate Business Lending specializes in working with business owners with less-than-perfect credit. The lender, which has a quick application process, works with both startup and established businesses. corporatebusinesslending.com

Credibility Capital: Credibility Capital is a marketplace lender focused on prime-credit small business borrowers. Its platform matches businesses with institutional investors to fund loans ranging from $10,000 to $150,000. The Credibility Capital Risk Score incorporates a range of data to arrive at a recommendation for a particular interest rate. The lender's borrowers are small businesses seeking capital primarily for business expansion and inventory financing. credibilitycapital.com

Credit Card Processing Specialists: Credit Card Processing Specialists offers merchant cash advances to small businesses. Its merchant cash advance services work by providing funds up front while taking repayment back when it processes payments based on an agreed-upon percentage. creditcardprocessingspecialists.com

Dealstruck: Dealstruck provides a variety of small business funding options, including business term loans, revenue-secured term loans and asset-based lines of credit. The company offers loans between $50,000 and $250,000. Businesses approved by Dealstruck need to be profitable, with annual sales of at least $250,000 and more than one year of operating history. dealstruck.com

Everest Merchant Services: Everest Merchant Services provides small businesses with merchant cash advances. Its four-dimensionalunderwriting and approval process focuses on future credit card transactions and receivables revenue as a repayment method. This system allows the company to quickly estimate and assess its return probability using all the dimensions of a business and not just a credit score. Repayment is based upon future swiped Visa and MasterCard credit card transactions. ems-merchants.com

Fastpoint: Fastpoint is a merchant cash advance provider. Fastpoint buys a portion of a business's future credit and debit card transactions at a discounted rate. The advance is repaid with a fixed percentage of the business's daily transactions. Only businesses with a credit card processing account may apply for a cash advance through Fastpoint. fastpoint.com

FastUpFront: FastUpFront provides completely unsecured business cash advances up to $250,000. All businesses that accept credit cards are eligible for a cash advance from FastUpFront. The cash advances are based on future sales, not credit scores. fastupfront.com

First Working Capital Group: First Working Capital Group specializes in small business funding. The lender offers a variety of loan types, including ongoing lines of credit, merchant cash advances, equipment leasing and franchise financing. First Working Capital Group provides loans regardless of credit history. Instead, this lender gives considerable weight to how long businesses have been open when determining the amount of funds that can be provided. firstworkingcapital.com

Fora Financial: Fora Financial offers flexible working-capital solutions to small businesses in need of financing. The lender offers both small business loans and merchant cash advances. Fora Financial serves a variety of industries, including manufacturing, medical, retail, wholesale, transportation, restaurants, construction and auto. The lender makes funds available within 24 hours of approval. forafinancial.com

ForwardLine: A nationwide supplier of financing to small businesses, ForwardLine uses technology and nontraditional credit algorithms to finance 98 percent of U.S. businesses that banks consider too small and too risky for a business loan. ForwardLine offers both small business loans and merchant cash advances. Financing is based on monthly credit card sales volume. Repayment is made by applying a small percentage of credit card transactions to the balance. forwardline.com

*Fundation: Fundation is a direct lender that delivers small balance commercial loans. The firm provides fixed rate loans of up to $500,000 using its own capital. Loans are available in one- to four-year repayment periods. Long-term loans are designed for borrowers who are looking to make large investments in their business (such as by expanding a product or service, hiring new employees and making capital improvements), and shorter-term loans are designed to help business owners with everyday operating costs. Both types of loan have fixed interest rates starting as low as 7.99 percent, with payments automatically debited from the customer's account twice a month. fundation.com

Fundera: Fundera gives small businesses access to multiple loan offers through one application. Fundera does not loan money directly to small businesses, but rather connects small businesses with different financing options. Types of loans the company helps set up for small businesses include small business loans of up to $1 million, merchant cash advances, equipment loans, factoring, 401(k) rollover funding and lines of credit. fundera.com

Fundbox: Fundbox offers business owners a way to fix their cash flow by advancing payments for their outstanding invoices. There is no approval process, no forms to fill out, no phone calls to make and no obligation. Businesses connect their accounting app to add their unpaid invoices, and pick the unpaid invoices they want to clear. An advance for the amount is automatically transferred to their bank account. fundbox.com

GoKapital: GoKapital helps entrepreneurs obtain business loans nationwide. With GoKapital, you can apply for a number of business lending options, including SBA loans, short term loans, lines of credit, merchant cash advances, equipment financing, franchise loans business acquisitions loans, loans for Latinos and small business loans for women. Businesses can be instantly pre-qualified for a loan by filling out an online application. gokapital.com

Headway Capital: Headway Capital offers small businesses lines of credit ranging from $5,000 to $30,000. Once approved, businesses can borrow as much money as needed, whenever it's needed, up to the available credit limit. With each draw, a business can select the repayment schedule that best suits its needs. In order to be eligible to apply, your business must have been in operation for at least one year, and it must be located in Florida, Illinois, Missouri, North Carolina, Pennsylvania, Virginia, Washington or Wisconsin. headwaycapital.com

*Kabbage: Kabbage is a provider of working-capital loans to small businesses. Kabbage uses data generated by dozens of business operations to understand performance and deliver fast, flexible funding in real time. Kabbage can support any small business by analyzing various data sources that you use every day to run your business. kabbage.com

Kalamata Capital: Kalamata Capital is a data-driven, alternative finance company focused on small business. The lender offers a wide range of loan types, including working-capital loans, business expansion/acquisition loans, SBA loans, lines of credit, equipment financing, inventory financing, accounts receivable factoring and merchant cash advances. Utilizing automated data aggregation and electronic payment technology, Kalamata Capital can make credit decisions in as little as 24 hours. kalamatacapital.com

Kiva Zip: Kiva Zip is a program that provides small business owners in the U.S. with access to capital through person-to-person lending. Its loans are crowdfunded by a community of lenders from around the world. As first-time borrowers on Kiva Zip, small businesses have the opportunity to raise up to $5,000 in capital with no interest or fees. Through Kiva Zip, anyone who wants to support small business growth and local job creation can choose to lend $5 or more to a small business of his or her choice. zip.kiva.org

Lending Club: Lending Club offers loans to most types of businesses in 45 states, including professional and personal services, retailers, contractors, health and wellness providers, automotive, wholesalers, manufacturers, and restaurants. Its loans can be used for a variety of purposes, including business expansion, inventory or equipment, working capital and refinancing. lendingclub.com

LendingTree: LendingTree connects consumers to lenders that compete for their business. LendingTree lenders offer an array of loan types, including business loans. The loan amount approved for a business is based on several key factors, such as how long the company has been in business, its annual revenue and its credit score. lendingtree.com

Lendio: Lendio is an online service that helps small businesses quickly find the right business loan. Lendio makes business loans by matching qualified small business owners with active banks, credit unions and other lending sources. lendio.com

Maverick Capital: Maverick Capital is a business funding provider that offers loans of up to $250,000 and merchant cash advances. This lender also offers a Hybrid Program that combines traditional cash advances with microloans. With the Hybrid Program, the cash advance is paid back through a combination of a holdback percentage of your credit card sales and a weekly payment. maverickcapital.biz

Merchants Advance Network: Merchants Advance Networkis a merchant cash advanceandunsecured loan provider. The lender offers loans and cash advances of between $2,500 and $1 million. To apply, businesses must fill out a loan application and provide three months of their most current credit card and bank statements to document sales. The entire underwriting process typically takes between five and seven days. merchantsadvancenetwork.com

Merchant Advisors: Merchant Advisors offers an assortment of loan types, including small business loans, working-capital loans, restaurant loans, bad-credit loans, cash advances, SBA loans, restaurant equipment leasing, lines of credit, franchise financing, 401(k) business funding and home-based business loans. onlinecheck.com

Merchant Cash and Capital: Merchant Cash and Capital purchases a business's future sales or credit card transactions and advances that money to them up front. After the business gets the advance, Merchant Cash and Capital deducts a fixed percentage from the company's daily gross sales or credit card sales until the advance is made whole. To qualify, a business must have been in operation for at least six months, have a minimum of $10,000 per month in gross sales and not have any bankruptcies. merchantcashandcapital.com

National Funding: National Funding offers small businesses a range of financial services and products, including working-capital loans and merchant cash advances. The company's small business working-capital loans require no pledge of personal assets. nationalfunding.com

*OnDeck: OnDeck offers loans to small and medium-size businesses. The company uses data aggregation and electronic payment technology to evaluate the financial health of businesses when determining whether to approve a loan request. The company's proprietary credit models look deeper into the health of a business, focusing on overall business performance rather than the owner's personal credit history. ondeck.com

PayPal: PayPal offers working-capital loans to small businesses that already process payments through PayPal. In most cases, the maximum loan amount is 8 percent of the sales a business has processed through PayPal in the past 12 months. When applying for a PayPal working-capital loan, businesses select the daily repayment percentage, which is the portion of future sales that will go toward repaying the loan balance. The loan balance is repaid automatically as businesses make sales through PayPal. paypal.com

Prosper: Prosper loans are not traditional small business loans; they are personal loans based on applicants' credit scores and are issued to individuals, not businesses. These loans are desirable in a variety of cases, such as when a business doesn't yet have a proven track record. Prosper loans are unsecured and don't require any collateral. prosper.com

SBL Group: SBL Group offers loans ranging from $5,000 to $1 million. Funds are typically available within 24 hours, with repayment terms ranging between three and 24 months. To qualify, businesses must have been in operation for more than three months, have income of more than $100,000 over the past 12 months and have a credit score higher than 500. smallbusinessloansgroup.com

*RapidAdvance: RapidAdvance offers small business a variety of financing options, including loans, merchant cash advances, lines of credit and SBA bridge loans. Businesses can be approved for loans in 24 hours and receive funds within three days. RapidAdvance has provided more than $700 million in financing to thousands of small businesses. rapidadvance.com Read our full review here.

Rapid Capital Funding: Rapid Capital Funding specializes in merchant cash advances for small and medium-size businesses. Rapid Capital Funding qualifies businesses for advances of between $5,000 and $500,000. The actual amount depends on each business' sales and history. Unlike other financing options, Rapid Capital Funding does not require a plan for the money and doesn't require it to be used for any specific purpose. rapidcapitalfunding.com

RedFynn: RedFynn offers a variety of credit card processing solutions, including business cash advances. Eligibility for cash advances is not determined by credit score alone; a business's current sales and length of time in operation are also considered. redfynn.com

SmartBiz: SmartBiz offers SBA loans of up to $350,000 with interest rates between 6 and 8 percent. After completing the application, businesses can receive funds in as little as seven days. SmartBiz is a joint effort of Golden Pacific Bancorp and Better Finance. Golden Pacific is a member of the SBA's Preferred Lenders Program, and Better Finance is a financial technology company that provides leasing and credit solutions. smartbizloans.com

Shield Funding: Shield Funding is an alternative lender specializing in bad-credit business loans. To be eligible, you need to have been in business for at least four months, and have bank receipts or accept credit cards as a form of payment. A minimum of $5,000 per month in gross revenues is required for companies that accept credit cards, and approximately $20,000 a month in gross revenues is required for those that do not. Shield Funding provides business cash advances and unsecured business loans of up to $500,000 for a variety of purposes, including to improve or expand a company, manage payroll costs, purchase inventory or equipment, acquire customers via marketing, improve or create a website and pay off creditors. shieldfunding.com

Small Business Loans Depot: Small Business Loans Depot offers an assortment of loan types, including bank statement loans, small business loans, working-capital loans, equipment loans and equipment refinance loans. Loans are available from $5,000 to $150,000. The amount for which a business can qualify depends on business and personal credit, time in business, the amount of equipment owned and gross sales. smallbusinessloansdepot.com

SnapCap: SnapCap is an alternative lender that specializes in unsecured business loans of between $5,000 and $600,000 for general purposes, expansion, inventory or equipment. The lender offers a paperless application process and a 48-hour turnaround. There are no collateral or annual revenue requirements. In addition, SnapCap places little emphasis on personal credit when determining whether to grant a loan. snapcap.com

Square: Square offers small business funding to its customers that have an active credit card processing account with Square. Square capital can be used to increase inventory, buy equipment or open a new location. Businesses make loan repayments to Square automatically as a fixed percentage of their daily card sales. The payments are tied directly to card sales. Businesses pay more when sales are strong and less if things slow down. squareup.com

Sure Payment Solutions: Sure Payment Solutions is a small business financing company. The lender offers loans of up to $500,000, business cash advances and accounts receivable financing. Sure Payment Solutions offers flexible payment options, no early or late payment penalties, no application fees and 24-hour approvals. surepaymentsolutions.com

Swift Capital: Swift Capital provides fast business funding, with amounts ranging from $5,000 to $300,000 and pricing starting as low as 9.9 percent. Through the use of its data and technology systems, Swift Capital can streamline the approval process and eliminate the paperwork. For funding amounts of $10,000 or less, funds can be wired to your account within one hour. Repayment is typically made through daily automatic deductions from each business's checking account. swiftcapital.com

United Capital Source: United Capital Source offers a variety of loan types, including small business loans, accounts receivable factoring and merchant cash advances. The company can approve loans of between $5,000 and $2 million. Businesses with bad credit are not automatically eliminated from loan consideration. Approvals can be granted in as little as 24 hours. United Capital Source's loans are unsecured and don't require a personal guarantee or collateral. unitedcapitalsource.com

Are you an alternative lender that would like to be added to this list? Please feel free to contact Chad Brooks at cbrooks@purch.com.

- See more at: http://www.businessnewsdaily.com/8448-best-business-loans.html#sthash.H686pqqh.dpuf

 


Why Fundation Would Rather Work With Banks Than Compete With Them

Much of the narrative written about alternative lenders is the story of a competition, with traditional lenders (banks mostly) on one side of the divide — and a wide field of online alternative lenders on the other.

But to Sam Graziano, CEO of Fundation, that view is a little bit off — because in many cases the reality is that traditional bank-based lending and its emerging online counterparts really aren’t staking out the same ground.

“Alternative lenders, to use the term broadly, exist to do what banks can’t or won’t do,” Graziano told PYMNTS in a recent conversation.

And that, he notes, is actually very good news for emerging online lenders like Fundation.

“I think if banks really wanted to do something and to make small loans, banks could price alternative lenders out of the market,” Graziano noted. “They have the cheapest cost of capital out there. They have 80 percent of their balance sheet made up by deposits, which costs virtually nothing today. There is the operating expense, which is a big part of the business as well, but I think that is dwarfed by the cost of capital advantage.”

An advantage, he says, that in the last 5 to 10 years banks haven’t been eager to press.

“In some asset classes, non-conforming mortgages or unsecured consumer loans for example, it’s not quite as much an argument about ‘can’t’ so much as it’s an argument of ‘won’t,’” Graziano explained. “Banks got burned pretty badly by those asset classes in the last credit cycle and they decided to stay away from this stuff.”

In small business lending, on the other hand, the question hasn’t so much been about willingness, as it’s been about ability — or at least ability to underwrite those loans in an efficient and profitable way.

“Small business lending suffers from more of structural challenges, meaning the banks have not decided for now they don’t want to do this stuff because they decided against it,” Graziano explained. “Structural means there is stuff that prevents it from being an efficient or profitable business line for banks.”

And overcoming those “structural difficulties,” is the reason Fundation exists. The problems are well-known throughout financial services — small businesses are a high-risk group, and they tend to also be low collateral. Other than those basic similarities, the category “small business” captures an unimaginably large and heterogeneous population that’s hard to assess. Banks handle that difficulty with high demands for and lots of (time-consuming) documentation. Fundation comes at the problem rather differently.

“We do everything soup to nuts. We find customers through partnerships or directly. We underwrite, originate and hold on to loans as an account on our balance sheets, which means we take risk in every loan we originate,” Graziano said, noting that structurally its model is very similar to that of a traditional bank.

He also noted because they carry the loans — instead of selling them off like a marketplace lender would — they are particularly invested in their partners’ outcomes and evaluating those risks well.

“We are very heavy on aggregating third-party data in real time, doing a lot of automation, using disparate data sources and combining them to determine what kind of risks we are taking,” Graziano explained.

Banks certainly could build that kind of very specialized platform, but it would be both entirely too time-consuming and costly to do so — particularly when working in concert with a platform player like Fundation is an option.

An option that Regions Bank tapped into this week, with its announcement that it will be integrating its small business lending with Fundation with what they are described as  a “first of its kind” effort at delivering coordinated lending solutions.

“Small businesses continue to drive growth throughout the economy, and in order to meet their ever-evolving needs and desire to utilize online and digital processes, the financial services industry must provide innovative solutions that offer flexibility, speed, and capital access in a responsible manner,” said Joe DiNicolantonio, head of Regions Business Banking.

“We know that 20 percent of small business owners in the U.S. are already turning to online lenders to meet their credit needs. This unique agreement with Fundation allows Regions Bank to expand loan product offerings and method of delivery for small businesses while also cultivating long-term revenue and loan growth opportunities.”

And it’s an opportunity for Fundation to expand its offering to Regions’ customer base across 16 states in the South, Midwest and Texas.

“Partnering with banks has been a great conversation point in our industry for a long time,” Graziano noted. “We are trying to really work to build a solution that exists right on a bank’s homepage, so we can really partner to get the customer into the right product.”

And building out those partnerships with banks is what’s on the agenda for the rest of the year of Fundation. Graziano expects to announce at least one other big tie-in before the year’s end.

Topics: Alt Lending Tracker alternative lending Featured Fundation


Fintech strikes again; Regions partners with start-up

In a deal that highlights the rising influence of Silicon Valley on finance, Regions Financial, which operate bank branches across 16 states, plans to partner with lending start-up Fundation to provide online loans to small businesses.

The partnership, due to be announced Monday, will give the publicly traded Regions, valued at $11 billion, a new online banking presence. It will give Fundation access to Regions' small-business customers in a deal that could double the start-up's revenue.

"We expect it will at least double (loan) originations and revenue" as a result of the partnership, CEO Sam Graziano told USA TODAY. He declined to provide revenue numbers for the privately held company, which is backed by private equity firm Garrison Investment Group.

The union comes as banks of all sizes -- including Wall Street behemoth Goldman Sachs -- look for ways to compete with the rise of online lenders — an increasingly crowded field that now includes LendingClub, OnDeck, Fundation and FundingCircle.

Online lenders present a threat to traditional banking because they face less cost and regulation. They can also provide loan guarantees faster than brick-and-mortar lenders.

Goldman Sachs predicts that the emerging financial technology industry, dubbed fintech, threatens to grab $4.7 trillion in revenue and $470 billion in profits from traditional Wall Street firms. That includes not just lending, but also payment transactions and even investment advice.

It's not just talk, either. Goldman CEO Lloyd Blankfein in May told staff that the behemoth investment bank is working on its own online lending product for consumers. "The firm has identified digitally led banking services to consumers and small businesses as an area of opportunity," Blankfein's letter said.

For Regions, the quest to find an online partner started last year after it conducted a survey of customers and found close to 20% "were using online alternatives other than Regions," said Joe DiNicolantonio, head of Regions business banking unit.

After talking with dozens of start-ups, Regions settled on Fundation, which underwrites its own loans, as opposed to LendingClub, which matches borrowers to lenders.

Small-business customers who go to the new co-branded website will fill out a single loan application. The site, powered by Fundation, will then direct borrowers to either Fundation or Regions, depending on their needs.

Customers seeking what is known as a fixed-rate installment loan, which is repaid over time with a set schedule of payments, will have their loans underwritten by Fundation up to $1 million. Borrowers seeking installment loans valued at more than $1 million, or other types of loan, such as a line of credit, will have their loans underwritten by Regions.

Fundation's Graziano said he expects to win similar partnerships with other banks. "We lend on a national basis so I could very well see us being a partner to another regional bank in the Northeast or Midwest," Graziano said.

Source: USA Today


Regions Bank Joins Forces with Fundation Group to Create First Integrated Small Business Lending Solution

Regions Bank Joins Forces with Fundation Group to Create First Integrated Small Business Lending Solution Between a Major Bank and Leading Online Business Lender

Agreement Provides Small Businesses with the Ease and Simplicity of Online Lending with Size and Influence of a Leading Banking Institution

BIRMINGHAM, Ala. – (BUSINESS WIRE) –October 5, 2015 – Regions Bank and Fundation Group LLC today announced an agreement that will combine the strengths of one of the nation’s largest full service banks with that of a leading online lender to provide small businesses with a first of its kind, coordinated delivery of lending solutions.

Small business owners looking to grow and expand, or to better manage cash flow, will have the option to access Fundation’s online application directly from the Regions.com website. This new co-branded online customer experience will allow small businesses to expedite their loan applications for Regions lending products or elect to apply for a Fundation loan.

“Small businesses continue to drive growth throughout the economy, and in order to meet their ever-evolving needs and desire to utilize online and digital processes, the financial services industry must provide innovative solutions that offer flexibility, speed, and capital access in a responsible manner,” said Joe DiNicolantonio, head of Regions Business Banking. “We know that 20 percent of small business owners in the U.S. are already turning to online lenders to meet their credit needs[1]. This unique agreement with Fundation allows Regions Bank to expand loan product offerings and method of delivery for small businesses while also cultivating long-term revenue and loan growth opportunities.”

Commenting on the relationship, Sam Graziano, CEO of Fundation, said, “This agreement is a first-of-its-kind for the online lending industry.  Regions and Fundation made a commitment to develop a highly integrated and coordinated approach to serve the small business market in Regions’ footprint.  Regions brings a powerful brand, an outstanding retail distribution franchise and an already very strong set of capabilities in delivering credit products to small businesses.  By leveraging our digital infrastructure, we expect to enhance Regions’ leadership position in its footprint and meaningfully accelerate the growth of our own business.”

Fundation offers a streamlined online loan application with a high-touch concierge service to offer loan applicants valuable information and insight about the loan process and their loan application. Small businesses can apply for a loan in less than 10 minutes and loans can be funded in three days. To apply, customers simply visit Regions.com/smallbusiness and are directed through a link from Regions.com to Fundation’s online application.

About Fundation

Fundation is a leading online direct lender, providing small businesses with a simple and efficient online borrowing experience that leverages technology to streamline the collection of customer data, expedite the application process and offer customers unprecedented transparency.  The company offers conventional term loans to small businesses nationwide for working capital, growth and expansion. Visit http://5kb.f76.myftpupload.com for more information.

About Regions Financial Corporation

Regions Financial Corporation (NYSE:RF), with $122 billion in assets, is a member of the S&P 500 Index and is one of the nation’s largest full-service providers of consumer and commercial banking, wealth management, mortgage, and insurance products and services. Regions serves customers in 16 states across the South, Midwest and Texas, and through its subsidiary, Regions Bank, operates approximately 1,630 banking offices and 2,000 ATMs. Additional information about Regions and its full line of products and services can be found at www.regions.com.

[1] “The Joint Small Business Credit Survey, 2014,” a collaboration among the Federal Reserve Banks of New York, Atlanta, Cleveland and Philadelphia. Released February 2015.


Investing in Alternative Lending?

That Could Mean a Lot of Different Things

As CFA’s recent Alternative & P2P Lending and Investing Forum in New York proved, “alternative lending/fintech” is a topic on many minds today. It’s also still somewhat shrouded in mystery. Sam Graziano, CEO of Fundation, sheds some light on the topic, particularly about those investing in the space.

BY SAM GRAZIANO

“Alternative Lender” is a term now applied to just about any lending-oriented business model without the word “bank” in it. The term has been applied to businesses that source borrowers and refer borrowers to lenders (also known as an “Aggregator”), businesses that originate and sell loans or loan participations (also known as “Marketplace Lenders”), and businesses that originate and hold loans for their own balance sheet (also known as “Direct Lenders”). From an investor’s standpoint, there are dramatic differences in how you can participate in this market and your investment rationale for doing so.

The Old Alternative Lending and the New Alternative Lending

For many of you reading this article, “alternative lending” is not a new term. In fact, your business may have been called an alternative lender, a term that historically was applied to asset-based lenders, factors and other commercial finance companies that originated leveraged loans, equipment loans, and short-term and long-term secured receivables financing. Many of these product categories are now addressed by specialized business units within the banks themselves.

The new alternative lenders are something else entirely. The markets they address, the way they underwrite and how they acquire customers is different. The ecosystem of aggregators, marketplace lenders and direct lenders provides small-balance credit instruments predominantly through the Web to consumers and small businesses, uses business process automation to deliver cost and time efficiencies into the lending process, and uses real-time (seconds) data aggregation and analytics to predict and price risk. Fundamentally, these business models are leveraging technology to deliver small-balance credit in markets where the banks do not. I humbly suggest a different term for these companies: “Digitally Enabled Lenders,” or DELs.

Why Is There So Much Interest in DELs?

After about eight years, two IPOs and perhaps $20 billion originated, the level of investor excitement over DELs has not dissipated. LendingClub, the world’s largest marketplace lender, launched its initial public offering in December 2014, followed shortly thereafter by OnDeck Capital, the largest short-term working-capital financing provider to small businesses. LendingClub, a business without much of a balance sheet , trades at nearly 200x its annualized “adjusted” EBITDA and more than 100x forecasted 2016 earnings. OnDeck Capital, predominantly a balance sheet lender, trades at more than 4x book value and more than 35x forecasted 2016 earnings.

Unquestionably, these valuations indicate an expectation of a high rate of growth for years to come. Justifying these growth rates requires investors to assume that DELs are technology disrupters that will disintermediate the banking industry and capture meaningful market share in the process. The investment narrative is
that regulatory pressure, heightened regulatory capital requirements, and antiquated and entrenched technology put banks at a competitive disadvantage versus DELs. There is a lot of merit to this investment rationale, as the level of regulatory supervision is impeding bank innovation and consumers are embracing what the web and mobile applications deliver throughout their lives.

The Other Side of the Coin

The largest DELs address the unsecured consumer loan, nonconforming mortgage, graduate student loan and small business loan markets, where digitally enabled processes permit the delivery of small amounts of credit to individual borrowers through the Web. It is easy to understand why DELs do not exist in larger-ticket, higher-touch lending categories like ABL commercial real estate and commercial loans. However, there are also no substantial DEL franchises in some of the largest consumer markets, such as credit cards, auto finance, conforming mortgages and government-guaranteed student debt. The national banks and other national brands still dominate these product categories.

Despite an operating expense advantage enabled by technology, the banks have a potentially insurmountable advantage in terms of cost of capital. They also have a structural advantage to the customer’s mind share as a result of the deposit relationships they have with customers. So the question remains as to whether DELs can compete head-to-head with banks for a customer. DELs, thus far, thrive where the banks cannot or will not participate.

Banks will often shy away product categories where all, or many, of the following characteristics are present:

  • Regulatory pressure or a deliberate risk management decision on the part of the banks to reduce exposure to a given product category
  • A lack of (or material deficiency of) collateral or government guarantees
  • Heightened regulatory capital requirements
  • The need to employ a risk-based pricing framework to manage risk effectively, with which many banks are uncomfortable.

Even when these market characteristics are present, many of the consumer-oriented products are dominated on a national scale by virtual oligopolies among the national banks. Take credit cards, for example: this market is dominated by 7 companies—Bank of America, JPMorgan Chase, Capital One, Citigroup, AMEX, Discover and US Bank. These are business lines with massive scale and are highly profitable. These firms will protect their trophy franchises at all costs.

Investing in Digitally Enabled Lending

To be an investor in Digitally Enabled Lending, you have to pick your product category and pick your investment strategy. Marketplace lenders offer investors, for the first time, the ability to purchase consumer and small business loans at scale, a proposition that can deliver exceptional risk-adjusted returns with low volatility across market cycles.

As an equity investor, you need to pick the business model that you believe in. Aggregators and Marketplace Lenders are capital-light, low-profit-margin businesses (profit as a percentage of dollars originated) and, therefore, require substantial scale to generate profits. But scale is the name of the game, as many believe that these businesses can grow unconstrained by access to capital.

Direct lenders, on the other hand, are capital-intensive businesses, but capture the entire revenue stream on a given credit instrument rather than outsourcing most of that to the loan buyer. These are traditional commercial finance companies in the way they make money, but nontraditional in how and what they originate and retain.

In today’s landscape of Digitally Enabled Lending, we find an interesting mixture of traditional financial-services equity investors, credit investors and technology-minded investors that have different points of view.

Ultimately, every DEL is exposed directly or indirectly to the cyclicality of the demand for, and performance of, credit. Time will tell if this is a new story altogether, or the same story in digital form.

Sam Graziano is the chief executive officer of Fundation, a New York City-based small business direct lender and solutions provider that utilizes a sophisticated software platform to streamline the lending process. Fundation launched its system to the public in May of 2013 and is now backed by a group of high-profile private equity firms and other investors. Graziano is a highly experienced financial services professional and entrepreneur. Prior to Fundation, he spent over a decade in investment banking and private equity where he developed an expertise on strategic, financial and operational issues for banks, specialty finance companies, asset managers, broker/dealers and other institutions throughout the financial services sector. At Centerview Partners, Graziano provided strategic and financial advisory services to some of the nation’s largest and most recognizable financial services companies. Prior to Centerview Partners, he spent six years with Keefe, Bruyette & Woods, the nation’s largest boutique investment bank focused on the financial services sector, where he executed dozens of mergers and corporate finance transactions and then co-founded the firm’s private equity practice. Graziano graduated from Bucknell University with honors with a degree in Computer Science & Engineering.