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ALTERNATIVE LENDING REPORTTHE

Turn to ‘Alt-Lenders’ on page 16

STATE OF THE MARKETPLACE LENDING SECTOR (PART 2)

By Brian O’Connell

(Note: This is the second in a two-part series on the future of marketplace lending. Part 1 appeared in the last issue of The Alternative Lending Report.)

There’s no shortage of buzz over conditions in the marketplace lending sector, much of it negative.

Rampant layoffs, mini-scandals, and financial underperformance threaten to curb industry growth at best, and drive it to the outer fringes of the lending sector at worst.

But are things really that bad? Not according to industry insiders. Morgan Stanley estimates the total addressable market for online SME

lenders is $280 billion and the industry will grow at a 47% annualized rate through 2020. Additionally, online lenders will constitute nearly a fifth of the total SME lending market by the end of the decade, they report.

ATTACKING LOAN STACKING: ALT-LENDERS FIGHT BACK

By Steve Evans

Alternative lenders in their struggle against loan stacking now face added com-petition from debt consolidators swooping in to poach their customers.

In response, lenders are building stron-ger algorithms and conducting hard credit checks to reduce the risk of loan stacking by small business borrowers. As with so many issues facing fintech, how you per-ceive the situation depends on which side of the fence you’re standing. Some people in the industry blame the borrowers for making bad choices. Some point to other lenders or the brokers working with them.

With the advent of highly automated underwriting systems, borrowers in recent years have been able to secure multiple loans before credit bureaus caught up with the activity due to reporting lag times of as much as 30 days. “Soft” credit checks may not even show up on a borrower’s credit report, and may simply consist of review-

ing pay stubs and tax filings for the busi-ness. These loose lending standards come back to bite as borrowers quickly get in over their heads and may soon discover they’re unable to pay. And some borrowers stack loans deliberately, with intent to defraud, according to research by TransUnion. MCAs account for most of the stacking in the industry, several sources said.

“I get a lot of brokers that send me deals looking to re-fi customers who are stacked,” says Burton Brooks of Money Match Maker. “I’ve got term lenders who’ll actually re-finance those loans, and 9 times out of 10 stacking another loan is convenient, easy money and customers end up taking them.”

Small business owners who secure a loan often wind up on a Uniform Commercial Code list. The lists are bought, sold and swapped among multiple lenders, Burton says.

Turn to ‘Marketplace Lending’ on page 17

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Volume 1, No. 3 May 18, 2017

LEGAL & REGULATORYMCA Funder Wins Latest Skirmish Against Long Island Attorney ...................... 3

STRATEGYMarketplace Lender Bizfi Reportedly Laying Off Staff and Facing Operating Issues ......................................... 4

NEW TECHNOLOGY & PRODUCT LAUNCHESPlatform announcements, new software and services, and notable product releases. ......................................... 5

INDUSTRY NEWSYellowstone Capital Closes $75M Cash Infusion from South Korea ................. 6A recap of recent news of importance to lenders, brokers, and service providers. ................................. 6

LOAN TAPEBanks & Companies with Exposure to Small Business Loans .............................. 9M&A + Partnerships & New Investments ................................... 10Indices/Funds of Interest/SBA Activity ....... 13Recent Litigation Related to Small Business & Alternative Lending ....... 14

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ALTERNATIVE LENDING REPORTTHE Commentary


DealFlow Financial Products, Inc. P.O. Box 122

Syosset, NY 11791T (516) 876-8006 F (516) 876-8010

[email protected] www.smallbusinesslending.io

The Alternative Lending Report™ is published on the first and third Thursday of every month, except the second Thursday of August and the second Thursday of December. Subscription rate: $995 per year for 22 issues, delivered electronically.All rights reserved. © 2017 DealFlow Financial Products, Inc. Photocopy permission is available solely through DealFlow Financial Products. Copy-ing, distributing electronically by email, or duplicat-ing this publication in any manner other than one permitted by agreement with DealFlow Financial Products is prohibited. Such actions may constitute copyright infringement and leave perpetrators sub-ject to liability of up to $150,000 per infringement (Title 17, U.S. code). The Alternative Lending Report and The Alternative Lending Conference™ are trademarks of DealFlow Financial Products. The Alternative Lending Report is a general-circula-tion publication. No information herein should be construed to be recommendations to purchase, retain, or sell securities, or to provide investment advice of the companies mentioned or advertised. No fees are accepted for publishing any editorial information. DealFlow Financial Products, Inc., its subsidiaries, and its employees may, from time to time, purchase, own, or sell securities or other investment products of the companies discussed or advertised in this publication.

Editor & Publisher Steven Dresner

Contributing Editor

Steve Lord

Contributing Writers

Steve Evans Grant Harvey

Tim Lloyd Brian O’Connell

Gary Stern

Production Editor Gary Newman

Operations Lenny La Sala

Technology Tarun Gupta

EDITORIAL

ADDRESSING THE LACK OF TRANSPARENCY IN SMALL COMPANY LENDING

By Steven DresnerPeople who take news reporting seri-

ously consider the “Five W’s” principles to live by. According to the Five W’s, infor-mation can only be considered complete if you’ve answered the questions of who, what, when, where, and why. And so I thought it would be fitting to introduce you to The Alternative Lending Report by answering these questions.

Who’s the publisher? DealFlow Financial Products (a/k/a “DealFlow”), is the publisher of The Alternative Lend-ing Report. As a company, we have con-siderable experience providing news, information, and analysis across a variety of deal markets. Since 2003, our team has worked to make capital markets more efficient by offering unique insight to thousands of clients of our publica-tions, events, and database services.

If you’re a lender, broker, or service provider, we’re working for you – and The Alternative Lending Report is meant to serve as your trade publication.

What does the report cover? The Alternative Lending Report is dedicated to covering the small business lending ecosystem including alterative investment structures, online and marketplace lend-ing, and non-bank financing structures such as factoring, invoice financing, mer-chant cash advance, and revenue-based financing. As the flag on the cover of this report suggests, we’re focused on innova-tions in finance and technology, legal and regulatory dynamics, and strategy within the alternative lending segment.

Regarding the borrowers we’ll cover, we are using criteria based on the size of a loan (approximately $1M credit or below) and/or the size of the com-pany (approximately $20M in revenues or below). Academic whitepapers and industry experts commonly use these

thresholds to define the scope of the small company lending market. We do not cover consumer lending, except where we believe information in that segment would be useful to our readers.

A final note about our coverage: While we publish information about developments globally, our primary focus is on the United States.

Why are we doing this? There’s very little transparency in this market. With-out government-mandated loan report-ing, or public aggregation of data, there’s simply not enough information for peo-ple to make good business decisions.

Our call-to-action at DealFlow has always been to make markets more efficient through information and data. That’s what we’re aiming to do in the small company lending segment.

What’s our publishing frequency? Our first product, Small Business Lend-ing Daily, is a free electronic newsletter that’s published Monday through Friday and delivered to your inbox. We cover a broad swath of topics in our Daily email such as “traditional” bank lending and we aggregate original articles, research reports, and news releases.

The Alternative Lending Report is pub-lished in PDF on the first and third Thurs-day of each month. As we enhance our website, new information will be updated daily on SmallBusinessLending.io.

In the near future, we will also be launching innovative webcasts, live events and training programs, and subscription-based analytics. As these products and services come online, we’ll notify you and keep an open channel for your feedback. In the meantime, we hope The Alternative Lending Report meets your expectations. If you’d like to subscribe to the report, call us at (516) 876-8006.

[email protected]

www.smallbusinesslending.io



ALTERNATIVE LENDING REPORTTHE Legal & Regulatory

MCA FUNDER WINS LATEST SKIRMISH AGAINST LONG ISLAND ATTORNEY

By Steve Evans

Merchant Funding Services won its most recent MCA lawsuit against a defen-dant represented by Long Island attorney Amos Weinberg. Merchant and Weinberg are adversaries in half a dozen New York lawsuits involving MCA contracts.

Merchant’s contract with defendant Micromanos Corp. called for Merchant’s purchase of 15% of the company’s future receipts until a payoff of $224,250 was reached. Defense attorney Weinberg argued that the deal was criminally usurious on its face, and he refer-enced a case last year in which he represented another company against Merchant using a virtually identical defense. This time, Judge Catherine Bartlett shot him down.

In the earlier case, the New York Supreme Court found the agreement between Merchant and Volunteer Phar-macy to be “criminally usurious on its face.” Since then, court records show Weinberg has been citing that decision to support his defense of clients in other MCA lawsuits.

Asked if he actively pursues clients in dispute with MCA companies as sources have alleged, Weinberg said, “I don’t go out seeking anybody unless there’s a lawsuit filed.” Weinberg did not follow through on his offer to share his detailed arguments via email in the Micromanos case.

Meanwhile, Judge Bartlett’s ruling in the case could throw the earlier New York Supreme Court decision in Weinberg’s favor into legal limbo. Weinberg has appealed

Bartlett’s decision to the New York Supreme Court Second Judicial Department.

Micromanos, like Volunteer Phar-macy, tried to appeal a confession of judg-ment entered against them by filing a motion instead of a new lawsuit. But Judge Bartlett in the Micromanos case rejected that argument – and called the defendants out on the carpet for misleading the court. She noted that the actual wording of the

contract and the information Weinberg presented to the court were different. In the latest court battle with Merchant, Weinberg had also cited the earlier state supreme court decision in his favor as part of his argument against Merchant in the Micromanos case.

Weinberg argued that “the Adden-dum altered the essential nature of the Agreement by requiring a Daily Payment of $2,995.00 on pain of default, thereby eliminating any element of risk or contin-gency in the amount or timing of payment to (Merchant Funding Services), and con-verting the Agreement into a criminally usurious loan bearing interest at the rate of 167% per annum,” the judge wrote in her ruling.

“Not so,” she added.

In fact, the judge noted that the Adden-dum “expressly provided that the $2,995.00 Daily Payment was only ‘a good-faith approximation of the Specified Percent-age’ of 15% of Micromanos’ receipts, and that Micromanos was entitled to request a month-end reconciliation to ensure that the cumulative monthly payment did not exceed 15% of Micromanos’ receipts. Defendants’ contention that MFS was entitled under

the Addendum to the $2,995.00 Daily Payment without being obliged to offer Micromanos a month-end reconcilia-tion is founded on an incomplete and palpably misleading quotation … of the Addendum.”

In ruling in favor of Merchant Funding Services, the judge wrote,

“Therefore, the Secured Merchant Agree-ment is not on its face and as a matter of law a criminally usurious loan.” The ruling was signed May 4.

Merchant Funding Services has pend-ing suits in New York against Biovideo LLC, Bayview Real Estate, Lincoln Peak Partners, Innovative Healthcare, Land-mark Construction Development and VMB Enterprises. Court records show Weinberg is the defending attorney in each of those cases, several of which involve motions to vacate an earlier deci-sion in favor of Merchant.

In his appeal of Bartlett’s decision in the Micromanos case, Weinberg argues the lower court abused its discretion and “mis-applied the law and facts of the case.”

PENDING LITIGATION BETWEEN MFS AND AMOS WEINBERG CLIENTS

PLAINTIFF DEFENDANT FILED ATTORNEY FOR PLAINTIFF STATUS CASE # VENUEMerchant Funding Services LLC Bayview Real Estate 01/31/17 Vadim Serebro Active 0028736/2016 NY Supreme - BronxMerchant Funding Services LLC Micromanos Corp. 03/02/17 Renata Bukhman Disposed 0000598/2017 NY Supreme - OrangeMerchant Funding Services LLC Innovative Healthcare 03/02/17 Renata Bukhman Active 0035196/2016 NY Supreme - RocklandMerchant Funding Services LLC Landmark Construction 03/02/17 Renata Bukhman Active 0001001/2017 NY Supreme - OrangeMerchant Funding Services LLC Biovideo 04/24/17 Vadim Serebro Active 0021995/2017 NY Supreme - BronxMerchant Funding Services LLC Lincoln Peak Partners Inc. 05/01/17 Christopher Castro Active 0001333/2017 NY Supreme - Orange

Source: New York State court filings

“I don’t go out seeking anybody unless there’s a lawsuit filed.”

Amos Weinberg

https://iapps.courts.state.ny.us/nyscef/DocumentList?docketId=0PizK8DMKYTlYpcfTpbR5Q==&display=all&courtType=Bronx%20County%20Supreme%20Court

https://iapps.courts.state.ny.us/nyscef/DocumentList?docketId=eQ35Xx/pd2exnzK0EL0h_PLUS_w==&display=all&courtType=Orange%20County%20Supreme%20Court

https://iapps.courts.state.ny.us/nyscef/DocumentList?docketId=iveS0QRTQZ4NxEpPU6voEg==&display=all&courtType=Rockland%20County%20Supreme%20Court

https://iapps.courts.state.ny.us/nyscef/DocumentList?docketId=NV/jSgo5c49H6tZRNmYOtw==&display=all&courtType=Orange%20County%20Supreme%20Court

https://iapps.courts.state.ny.us/nyscef/DocumentList?docketId=2x1KWGPBheQHwxBA9NplVw==&display=all&courtType=Bronx%20County%20Supreme%20Court

https://iapps.courts.state.ny.us/nyscef/DocumentList?docketId=MDt2J4tr5EDVHyztGnWpEw==&display=all&courtType=Orange%20County%20Supreme%20Court




MARKETPLACE LENDER BIZFI REPORTEDLY LAYING OFF STAFF AND FACING OPERATING ISSUES

By Gary M. Stern

Several sources have informed The Alternative Lending Report that Bizfi, the New York-based marketplace lend-er, has terminated over a third of its approximately 150 employees, and is significantly reducing the number of loans it issues.

When asked to respond to this news, a Bizfi press representative said that founder Stephen Sheinbaum was unavailable to address inquiries on the matter.

According to its website, Bizfi has provided over $2 billion in financing and issued more than 35,000 loans

to small businesses nationwide. Bizfi, which launched in 2005 and initially focused on merchant cash advances, specializes in small business lend-ing, and offers financing f rom over 40 lending partners. It offers an array of loans including short-term financ-ing, equipment loans, and longer-term loans guaranteed by the Small Business Administration.

Several online lenders have encoun-tered problems when the loans they are making proliferate faster than they can maintain and expand capital. The Alternative Lending Report contact-

ed two of Bizfi’s major f inancia l b a c k e r s , N e w York-based Met-ropol i tan Par t-ners and West Palm Beach-based Comves t Pa r t -ners, but neither returned calls.

The Bizfi press rep said that its e x e c u t i v e s a r e “heads down right now.”

T h e D a i l y Funde r on l ine forum, which is d o m i n a t e d b y brokers discuss-ing merchant cash advance business, has been lit up with suggestions that Bizfi is experienc-ing problems.

Our source also divulged to The Alternative Lend-

ing Report that Bizfi had enlisted a restructuring expert to strengthen its operations. The source said that Bizfi’s volume of deals has shrunk consider-ably on principal loans it was making but that its ISO business hasn’t been affected to the same degree.

Whether the company is having deep-rooted financial issues isn’t known but given the general turmoil in the sec-tor, it’s likely that part of the problem is that Bizfi is battling a slew of online and marketplace lenders who’ve saturated the market.

Most disruptive industries have a normal process of shake outs where the top performers prevail and the less stellar ones fall by the wayside. In an industry where competition is steep, some lenders are undoubtedly facing tough times. It’s not clear what Bizfi’s future is right now and no one from the company appears willing to discuss its status.

Strategy

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Unless your company holds a multi-user license, it is a violation of U.S. copyright law to photocopy or reproduce any part of this publication, or forward it electronically, without first obtaining permission from DealFlow Financial Products. For details about upgrading your license, contact us at (516) 876-8006 or [email protected].



ALTERNATIVE LENDING REPORTTHE New Technology &

Product Launches

Lending Tree Launches Credit Card Resource for Businesses

LendingTree launched Compare-Cards for Business, a destination for business owners created to simplify the business credit card selection expe-rience, and offers credit education, resources and comparison tools to empower business owners to shop, iden-tify and apply for the business credit card that best addresses their needs. bit.ly/2qtoiqS

Navitas Credit Launches Small Business Lending Website

Navitas Credit launched navitaslend-ing.com, a website designed to meet the financing needs of the small to mid-size business sector, and provides a single destination for business owners to access

financing solutions to meet their equip-ment procurement and cash flow needs. Companies can apply for credit on the website from a full range of equipment financing and working capital prod-ucts available, or request consultation from Navitas to help them decide. bit.ly/2qt5050

Farm Credit EXPRESS Introduces Equipment Leasing Program

Farm Credit EXPRESS, the equip-ment financing program offered by Farm Credit, launched a new leasing program rolled out to Farm Credit’s equipment dealer network to provide one stop shop-ping and quick financing to customers through their network of equipment dealers. Both programs offer financing for new and used equipment, and those customers who take out a loan with Farm Credit EXPRESS are able to share

in Farm Credit ’s p r o f i t - s h a r i n g patronage program. bit.ly/2qteayE

Crowd2Fund Announces Venture Debt Product

Crowdfunding platform Crowd-2Fund announced the launch of its new venture debt product, which is targeted towards early stage busi-nesses that have a short-term require-ment to access cash to facilitate growth. Interest rates for the product’s loans range from 10% to 15%, with a bor-row time period

of no more than 12 to 18 months, and businesses that are suitable for the ven-ture debt will be able to increase their value during the loan duration. bit.ly/2qtr3bN

First Associates Implements AI

Loan servicer First Associates announced it has implemented AI-enabled speech analytics as part of its third-party loan and lease servicing. Using speech analytics, First Associ-ates monitors, scores and provides agent feedback on voice interactions with consumers using data-driven bench-marking, facilitating customer interac-tions while ensuring compliance with financial industry regulations. bit.ly/2qtnWk8

New Factoring Portal Offers Range of Services

Neuss-based Factoring Service pro-vider fidis GmbH launched an over-hauled version of their FACT.portal website, speeding up document han-dling and providing customers with information concerning payments faster than their previous version. Addi-tionally, other factoring service provid-ers can customize the portal to match their company’s corporate design. bit.ly/2qtr3J3

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Yellowstone Capital Closes $75M Cash Infusion from South Korea

New Jersey MCA company Yellow-stone Capital closed a final round of $75 million in funding from Yesco Co. in South Korea.

The last tranche closed in April, deal advisor Pi Capital announced last week. Pi Capital was the buy-side advisor on Yesco’s investment. Yellowstone is using the funding to support the growth of its MCA business and to retire an existing debt facility, according to Pi Capital.

Yellowstone did not return calls seek-ing comment on the transaction.

Yellowstone CEO Isaac Stern first tweeted about the deal last year, when the initial round of funding began. Established in 2007, Yellowstone restructured under umbrella company Fundry in 2015 and today underwrites about $5 million monthly. Green Capital is also a Fundry subsidiary.

Yesco chief investment officer CJ Kim called the deal “a unique partner-ship.” Yesco is a gas distribution com-pany in South Korea and part of LS Group, which is one of the largest con-glomerates in that country. The company is actively seeking investments abroad using the cash flow from its municipal gas business.

“This is a good demonstration how outbound Korean capital can be deployed in a unique and attrac-tive investment in the U.S. and we are pleased we were able to bring this opportunity to our Korean client,” said Matthew Yoon, head of Pi Capital’s investment banking services in Asia.

Pi Capital in a slide deck presentation said the deal was under a tight timeline to meet Yellowstone/Fundry’s refinanc-ing schedule.

Marco Polo Securities also helped broker the capital infusion into Yellow-stone. Marco Polo reportedly has distri-bution partnerships with securities firms in 80 countries.

SoFi’s Bid to Become an Industrial Bank Pulls FDIC into Fintech Fray

San Francisco-based lender SoFi announced plans to apply for a specialty bank charter. Formerly a popular way to organize a bank, the state-issued char-ter was commonly used by companies that are not primarily in the financial services industry, but lost its popularity when Walmart tried it over a decade ago. Now, SoFi will need FDIC approval. bit.ly/2rrg5AV

Newtek Increases Capital One Revolving Credit Facility to $100M

Newtek Business Services announced that the company’s nationally licensed SBDA lender subsidiary Newtek Small Business Finance increased its existing revolving credit facility through Capital One by $50M to $100M. The term of this loan has been extended three years, through May 2020. bit.ly/2rr5p5q

River North MPL Fund Reaches $72M, Joins Fidelity Investor Platform

Chicago-based alternative asset manager River North launched a fund called the River North Marketplace Lending fund targeting income inves-tors and offering exposure solely to marketplace lending. The fund has reached $72M in assets and has report-edly provided a stable level of income of short-duration consumer and small business whole loans so far. bit.ly/2rr9nuI

92% of Financial Professionals Not Confident Advising on P2P Products

Members of the Peer-to-Peer Finance Association exceeded £8B of cumulative lending in April following

a strong first quarter of 2017. However, a recent poll conducted by Bridging & Commercial found that 92% of finan-cial professionals do not feel confident advising their clients on P2P products. bit.ly/2rrhlnw

Alternative Lending Venture Investments on Pace for New Low

According to new CB Insights Data, 11 years after the founding of Lending Club, investments in private alterna-tive lending companies are hitting new lows despite 8 of the 22 global private fintech companies valued at $1B or more are in fact, alternative lenders. bit.ly/2rrpRmN

P2P Platforms in the UK Predicted to Shift to Hybrid Models to Stay Afloat

Andy Davis of the Centre for the Study of Financial Innovation predicted in a new report that UK P2P lending platforms are poised to shift towards hybrid models to stay afloat, as the industry is now facing a plateau that may require it to expand into direct lending and balance-sheet operations, as well as cutting interest rates, to become profit-able. bit.ly/2rravys

Tecum Capital Starts Second Small Business Fund

Pittsburgh-based $450M invest-ment firm Tecum Capital announced it received a license from the U.S. Small Business Administration to operate its second SBIC fund and concur-rently announced its first closing for the new fund. This second fund is fully subscribed at $225 million. bit.ly/2rrA5Dk

Square Lent $251M to Small Businesses in Q1

Square Capital originated more than

Industry News

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https://www.slideshare.net/CristianChristianGom/pi-capitaloverview2317-72434778/12

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ALTERNATIVE LENDING REPORTTHE Industry News

40,000 business loans for a total of $251M in Q1 of 2017. Square originally relied on the merchant cash advance model but switched to making loans after they found it challenging to pack-age them up and sell them to investors. The company had $51M in loans held for sale on their balance sheet as of March 31st. bit.ly/2rr2Yzy

New Direct Lending Fund Seeks Fresh Capital Raise

The recently launched alternative credit investment trust RM Secured Direct Lending says demand for its loans are strong. The Edinburgh-based trust is seeking to raise fresh capital just five months after its launch as it nears full deployment of its capital. bit.ly/2rrbIG6

Chinese Online Lender SmartFinance Targets IPO in US

SmartFinance, a Chinese internet lending business that judges borrow-ers on factors including how often they charge their phones, has consulted banks about a possible U.S. listing that could happen as soon as this year, and hired former Cheetah Mobile CFO Andy Yeung to help better manage inves-tor relations and smooth the path to an eventual listing. bit.ly/2rruX2o

OnDeck Subsidiary Amended Existing Asset-Backed Revolving Debt Facility

Reuters reported that a subsidiary of OnDeck Capital amended and restated its existing asset-backed revolving debt

facility. Accord-ing to the SEC filing, this fourth A&R credit agree-ment provides for an increase in the lender ’s revolv-ing commitments from an aggregate amount of $75M to $100M, and provides for a two-year extension of a revolving com-mitment period to May 3, 2019. bit.ly/2rrvrFK

CIT Direct Capital Hits $4B in Financings to Over 100,000 Small Business Customers

C I T G r o u p

announced that its Direct Capital busi-ness, known for its proprietary online lending platform, has provided more than $4B in equipment financing and working capital loans to more than 100,000 small businesses across America since its inception in 1993. Additionally, the firm’s portfolio has now exceeded $1B. bit.ly/2rrshln

ABA Issues Analysis on CFPB Small Business Data Rulemaking

The ABA published a members-only analysis of the CFPB’s request for information regarding the small busi-ness lending market. Having previously called on Congress to repeal Section 1071 of Dodd-Frank, the ABA noted in its recent analysis that the CFPB has no experience or institutional proficiencies to meet the requirements for gathering information to understand commercial lending. bit.ly/2rrsAfS

Business Loan Brokers Now Need to be Licensed in Vermont

Vermont Governor Phil Scott made loan solicitation law H. 182 official on May 4th, regulating any company or per-son who for compensation offers, solicits, brokers, directly or indirectly arranges, places, or finds a loan for a prospective Vermont borrower, as well as those who assist with loans on behalf of Vermont Borrowers. bit.ly/2rrCQVc

New York Joins Common State Licensing Platform for Fintechs

The New York State Department of Financial Services announced it will join a majority of other state regulators to allow fintech companies to register through a common platform, marking another step toward better regulatory

Finance • Technology • Legal & Regulatory • S

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SmallBusinessLending.io

ALTERNATIVE LENDING REPORT

THE

Turn to True Lender on page 20

ONLINE PLATFORMS HAVE

CHANGED BROKERING DYNAMICS

By Gary M. Stern

Situated in his lower Broadway office, Nick Defonte who runs Broad-

way Advance is in the crosshairs of small business lending. Defonte offers

accounts receivable financing, often in the garment industry or for retailers.

Even as small company finance strategies like factoring have changed the

traditional lending landscape, Broadway Advance still also serves as a broker,

connecting clients to online lenders such as OnDeck, Fundation, Kabbage,

Credibly and ForwardLine, to name a few.

Most online lenders offer a specialty. For example, Kabbage specializes

in lines of credit of $2,000 to $100,000 with a six-month to one-year repay-

ment schedule; Accion lends to businesses open less than six months, and

Rapid Advance advances up to 250% of monthly credit card sales.

In the past, savings banks and community banks issued these small busi-

GLOVES COME OFF IN COLORADO

‘TRUE LENDER’ CASES

By Steve Evans

“True lender” lawsuits filed in Colorado

highlight the ongoing legal ambiguity of

marketplace lenders using the bank partner

model. The latest dispute began earlier this

year when Colorado’s attorney general filed

complaints in state court against Marlette

Funding and Avant of Colorado on behalf

of the administrator of the state’s Uniform

Consumer Credit Code. Later amended

and removed to federal court, the suits

allege violations based on earlier true lender

and loan assignment cases. According to

the complaints, these non-bank companies

are the true lenders because they market

and service loans originated by New Jersey-

based Cross River Bank and WebBank, a

state-chartered institution in Utah. The

banks sell the loans to their partners.

Relevant Litigation Still Pending

In both cases, the AG’s complaint cites

the 2014 case CashCall, Inc. v. Morrisey,

and Madden v. Midland Funding, LLC,

from 2015 as legal authority for claims

alleging usury and other violations of the

state’s Uniform Consumer Credit Code.

Referring to the Madden case, Colo-

rado argues that “a bank cannot validly

assign [federal interest rate exportation]

to a non-bank.” However, in that earlier

Madden case, the dispute involved the

sale and assignment of charged-off debt

– not loan originations under an ongoing

arrangement between a non-bank lender

like Marlette and Avant, and federally

insured institutions like Cross River and

WebBank. The banks earlier this month

jumped into the fray with filings for

declaratory judgment against Colorado.

“The decision in Madden was incor-

rect based on longstanding banking legal

precedent,” says Mike Tomkies, a partner

with Dreher Tomkies in Columbus, OH,

specializing in banking and finance law.

Turn to Brokering Dynamics on page 18

LENDER SATISFACTION

Satisfaction percentages of applicants

who were approved for financing:

Small Bank

Credit Union

CDFI

Large Bank

Online

Lender

5%

3%

1%

15%

19%

15%

19%

22%

24%

35%

80%

78%

77%

61%

46%

SatisfiedNeutral

Dissatisfied

input/output

Source: Small Business Credit Survey, Federal Reserve Banks

Volume 1, No. 1

April 20, 2017

COMMENTARY

Addressing the Lack of Transparency

in Small Company Lending .................

........2

STRATEGY

With SBA Budgets on the Chopping

Block, What’s the Lending

Environment Going Forward? .................

.... 3

LEGAL & REGULATORY

• Recent Litigation Illustrates

Why Merchant Cash Advances

Are Not Loans ................

..................

........6

• Bankrupt NuLook Now

Facing RICO Suit ................

..................

..... 8

NEW TECHNOLOGY

& PRODUCT LAUNCHES

Platform announcements, new

software and services, and notable

product releases. ...............

..................

...... 10

INDUSTRY NEWS

A recap of recent news of

importance to lenders, brokers,

and service providers. .............

.................

12

LOAN TAPE

M&A + Partnerships ................

.................

14

New Investments ...............

..................

..... 15

Indices/Funds of Interest/SBA Activity ....... 16

Credit Conditions/Indicators...............

....... 17

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ALTERNATIVE LENDING REPORTTHE Industry News

coordination aimed at helping states compete with the Office of the Comp-troller of the Currency’s fintech charter. bit.ly/2rrpMPY

New York Regulator Sues OCC over ‘Fintech’ Charters

New York’s banking regulator sued the OCC over its decision to offer special-purpose charters that would let online lenders and other fintech com-panies do business nationwide. In the lawsuit, Maria Vullo, superintendent of the New York Department of Financial Services, called the decision to grant the national charters “lawless, ill-con-ceived and destabilizing of financial markets” that are properly and most effectively regulated by the state. bit.ly/2rrpZCK

Federal Court Says Merchant Cash Advances Not Loans or Usurious

Defendants and counterc laim plaintiffs Epazz, Inc., Cynergy Cor-poration, and Shaun Passley moved to have the original action involving their merchant cash advance dispute transferred f rom state court to fed-eral court, but in the Southern Dis-trict of New York, the Honorable Louis Stanton echoed on May 9th what state judges have been saying all along: That an MCA is not a loan because the purchased receipts are not payable absolutely. bit.ly/2rreVWa

CFPB Director: Small Business Lending Should Mirror Mortgage Regulations

CFPB Director Richard Cordray announced at the Smal l Business L ending Fie ld Hearing in Los Angeles that cur-rent regulat ion pertaining to credit access among small businesses is not close enough to the underwriting stan-dards in place for mortgage lending, by way of compari-son. bit.ly/2rrsbdf

Nevada Firm Agrees to Pay Montana Tribe $2.5M Due to Online Lending Dispute

Nevada consult-ing firm Encore Services LLC and three of its execu-

tives will pay a Native American tribe in Montana $2.5M which the tribe says was stolen from an online lending com-pany it owns. The executives, Zachary Roberts, Martin Mazzara and Richard Broome, also pleaded guilty to criminal charges related to the illegal kickback scheme. bit.ly/2rrtqcD

Small Banks Warm Up to Marketplace Lending for SBA Expansion

Five Star Bancorp is the fourth and latest institution to partner with Smart-Biz Loans, which acts as an SBA loan marketplace and bank technology platform, to do more Small Business Administration lending. bit.ly/2rrfLSO

Kabbage’s Chief Revenue Officer Talks About Next Growth Phase

Victoria Treyger, Kabbage’s chief rev-enue officer, took some time to discuss future growth details with deBanked, ranging from serving larger businesses with bigger loans, to expanding its part-nerships to providing more niche-based features to customers. bit.ly/2rrsGUN

OnDeck’s New Strategy Hints that Online Lending’s Go-Go Days May Be Over

American Banker’s Kevin Wock ana-lyzes OnDeck Capital’s recent change in strategy, in the midst of enormous buzz for the online lending sector. OnDeck has been focusing on slowing down the number and size of loans as it tries to become profitable, even as loan origina-tion volume doubled over the past few years. bit.ly/2rr8RNa

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ALTERNATIVE LENDING REPORTTHE Loan Tape

COMPANY TICKERMKT. CAP

($M) CURRENT

PRICE12-MO.

CHANGESMALL BIZ LOAN %

Farmers and Merchants Bank FMCB 499.78 618.00 17.3% 31.5%GrandSouth Bank GRRB 51.82 14.50 11.5% 23.6%Trinity Bank, N.A. TYBT 66.10 59.50 19.0% 21.5%California Bank of Commerce CABC 115.75 19.70 47.5% 16.8%Greenville Federal GVFF 18.34 8.75 4.2% 16.5%Signature Bank SBNY 7,400.23 137.85 6.2% 14.4%Community Shores Bank CSHB 9.56 2.33 (0.9%) 12.2%Idaho First Bank IDFB 15.00 5.60 (13.8%) 11.4%Mission Valley Bank MVLY 24.00 12.25 58.1% 11.2%Community Bank of the Bay CBYA.A 21.83 5.05 11.0% 10.7%Frederick County Bank FCBI 35.46 23.50 11.4% 10.6%The Bank of South Carolina BKSC 97.19 19.55 25.1% 9.3%Bank First National BFNC 234.08 34.74 22.7% 9.2%Southern First Bank SFST 246.64 34.35 36.3% 9.0%Clarion County Community Bank CCYY 11.53 7.50 20.0% 9.0%Howard Bank HBMD 179.71 18.40 42.1% 8.9%American Riviera Bank ARBV 70.83 16.45 50.2% 8.8%US Metro Bank USMT 5.74 2.90 52.6% 8.6%Ojai Community Bank OJCB 28.77 12.85 127.0% 8.5%United American Bank UABK 17.10 18.00 2.8% 8.3%Pacific West Bank PWBO 8.12 11.50 13.9% 8.2%BlueHarbor Bank BLHK 21.75 7.95 3.9% 7.9%Community Bank of Santa Maria CYSM 20.73 10.50 28.0% 7.9%New Resource Bank NWBN 35.27 6.05 23.2% 7.9%York Traditions Bank YRKB 36.70 16.95 43.5% 7.8%Macatawa Bank MCBC 322.81 9.51 38.2% 7.8%Pacific Premier Bank PPBI 1,369.22 34.30 53.5% 7.7%The Freedom Bank of Virginia FDVA 79.15 12.75 47.7% 7.5%Pacific Mercantile Bank PMBC 181.93 7.85 6.9% 7.3%mBank (Mackinac Financial) MFNC 86.05 13.67 31.9% 7.1%Sunshine Bank SBCP 185.24 23.10 56.8% 7.1%German American Bancorp GABC 706.00 30.79 52.2% 7.0%Ameris Bank ABCB 1,621.35 43.65 44.6% 6.8%United Community Bank UCBI 1,868.77 26.33 36.4% 6.7%Commonwealth Business Bank CWBB 137.79 15.15 41.6% 5.9%CBT Bank SNV 36.77 36.95 33.2% 5.4%Towne Bank TOWN 1,831.59 29.60 45.2% 4.3%Adirondack Trust Company ADKT 67.92 1698.00 8.5% 4.3%Sandy Spring Bank SASR 935.24 39.01 42.8% 4.3%

COMPANY TICKERMKT. CAP

($M) CURRENT PRICE ($)

12-MO.CHANGE

American Express Bank AXP 68,257.92 76.37 21.7%Intuit Inc. INTU 32,205.93 125.35 22.7%Prospect Capital Corp. PSEC 2,940.70 8.17 8.6%The Pitney Bowes Bank PBI 2,803.11 15.03 (17.2%)FS Investments FSIC 2,279.92 9.30 3.7%Main Street Capital Corp. MAIN 2,132.89 38.14 18.3%Hercules Capital, Inc. HTGC 1,094.41 13.22 11.1%TPG Specialty Lending TSLX 1,230.75 20.53 25.4%Golub Capital BDC, Inc. GBDC 1,167.97 20.36 19.0%New Mountain Finance NMFC 1,076.89 14.40 16.0%TCP Capital Corp. TCPC 998.29 16.98 16.6%Solar Capital Ltd. SLRC 916.64 21.69 17.8%Goldman Sachs BDC, Inc. GSBD 847.88 23.33 17.2%Fifth Street Finance Corp. FSC 592.03 4.20 (18.4%)PennantPark Investment PNNT 542.19 7.63 17.9%BlackRock Capital Investment BKCC 549.18 7.53 0.7%

COMPANY TICKER LOAN TYPECURRENT

PRICE12-MO.

CHANGE

Lending Club LCConsumer/Business 5.60 55.6%

OnDeck ONDK Business 3.40 (23.9%)

Yirendai YRDConsumer

(China) 23.01 125.4%

Elevate Credit ELVTConsumer

(U.S. & U.K.) 7.81 n/a

Square SQ Business 19.56 113.1%

IOU Financial IOUBusiness

(U.S. & Canada) 0.17 (52.1%)China Rapid Finance XRF

Consumer (China) 7.53 n/a

NewTek Business Services NEWT Business 17.26 34.84%

OneMain Financial OMF Consumer 22.57 (24.46%)

Enova ENVABusiness/Consumer 13.45 88.11%

Select Banks with Significant Exposure to Small Business Loans A cross-section of publicly traded community banks with at least 4% of assets in small business loans with outstanding principal of $1M or less, according to FDIC Call Data as of 12/31/17. Market data as of May 17, 2017

Specialty Finance Companies with Exposure to Small Business Loans Publicly traded companies engaged in small business lending through commercial finance operations or BDCs, with at least $500M in market cap. Market data as of May 17, 2017.

Online Lenders Publicly traded companies engaged in online lending to con-sumers as well as businesses. Market data as of May 17, 2017.




DATE COMPANIES STRUCTURE DEAL DESCRIPTION5/16/17 Mediaplanet, Reliant

FundingPartnership Mediaplanet announced the launch of this year's edition of "The Future of Finance." Reliant Funding, a

partner within the campaign's small business funding section, provides key expertise when it comes to new trends in small business lending.

5/16/17 Aptean, Marlin Business Services Corp.

Partnership Commercial equipment financier Marlin Business Services and enterprise software solution-provider Aptean have entered an agreement for Marlin to support Aptean's North American operations with financing options for its customers.

5/15/17 Crestmark, Allstate Capital

Acquisition Crestmark announced the acquisition of Allstate Capital, a leading provider of equipment leasing.

5/15/17 PrivateBancorp, Canadian Imperial Bank of Commerce

Acquisition PrivateBancorp investors approved a $4.9 billion takeover by Canadian Imperial Bank of Commerce after the Toronto-based lender sweetened its deal twice to win over shareholders.

5/11/17 Pacific Mercantile Bank Partners, Fundation

Partnership Pacific Mercantile Bank has partnered with Fundation to offer small businesses a fast, convenient way to apply for financing options.

5/10/17 Global Debt Registry, Equifax

Partnership Loan data specialist Global Debt Registry partnered with global information solutions firm Equifax to incorporate the company’s income data into its eValidation suite of verification tools for investors and warehouse lenders in the online lending space.

5/10/17 Fifth Third Bancorp, Huntington Bancshares, KeyCorp, First Federal Lakewood

Partnership Fifth Third Bancorp, Huntington Bancshares, KeyCorp and First Federal Lakewood are among a handful of Ohio-based firms that have partnered to launch Fintech71, an accelerator that takes its name from Interstate 71 connecting Cincinnati, Columbus and Cleveland.

5/10/17 Live Oak Bank, First Data Partnership First Data, a global commerce-enabling technology firm, and Live Oak Bank have formed a joint venture to accelerate the growth of next generation digital banking services.

5/9/17 dv01, SoFi Partnership dv01, a platform that brings transparency to lending markets, announced a reporting partnership with SoFi. Institutional investors who use dv01 for analysis on consumer loans and bonds will now have access to all SoFi securitizations, including student and personal loans.

5/8/17 Tungsten Network, Institute of Finance and Management

Partnership Electronic invoicing company Tungsten has teamed up with the Institute of Finance and Management to help educate its business customers on streamlining supply chain management, aiming to provide resources to cut out friction in their supply chains.

5/8/17 Seacoast Bank, Palm Beach Community Bank

Acquisition Seacoast Bank announced that it has signed a definitive agreement to acquire Palm Beach Community Bank in a transaction that will expand Seacoast's presence in South Florida and strengthen its position in the state.

5/5/17 TouchBistro, Thinking Capital

Partnership Restaurant iPad POS solutions provider TouchBistro and Canadian SME finance fintech Thinking Capital have unveiled a partnership which offers restaurants a new way to secure operating capital or business growth financing. Canadian restaurateurs using TouchBistro’s POS system can apply for financing with Thinking Capital via their TouchBistro account portal.

5/5/17 Cortex Business Solutions, FundThrough

Partnership Cortex Business Solutions announced that it struck a partnership with supplier financing platform FundThrough to link its existing supplier clients that need working capital while they wait for their invoices to get paid.

5/4/17 IOU Financial, EVO Partnership Through this strategic partnership, IOU's direct clients will be able to take advantage of EVO's innovative merchant services solutions, save money, and allocate more capital to growth.

5/4/17 Tungsten Network, BlueVine

Partnership Tungsten Network, a global business transaction network, and BlueVine, a provider of online working capital financing, unveiled a new partnership that aims to better meet the financing needs of small and medium-sized businesses on Tungsten Network

M&A + Partnerships (April 19 through May 16) During the period April 19 through May 16, 2017, M&A deal activity and strategic partnership announcements in the alternative lending and small business lending segments included the following companies/transactions.




DATE COMPANIES STRUCTURE DEAL DESCRIPTION5/3/17 Seacoast Commerce

Banc, Capital BankMerger Seacoast Commerce Banc and Capital Bank jointly announced the signing of a definitive merger agreement

pursuant to which Capital will merge with and into Seacoast.

5/3/17 Ratesetter, Vehicle Stocking, Vehicle Credit

Acquisition The P2P lender said it has acquired specialist motor finance providers Vehicle Stocking and Vehicle Credit out of their parent company’s administration.

5/3/17 Elevate, Republic Bank, Victory Park

Partnership Republic Bank has increased its debt facility with Victory Park Capital from $150 million to $250 million to diversify the funding capacity of its Elastic line of credit product.

5/2/17 First Bancorp, ASB Bancorp, Inc.

Acquisition First Bancorp has signed a definitive merger agreement under which it will acquire ASB Bancorp, Inc. in a cash and stock transaction valued at approximately $175 million, or $43.12 per share based on First Bancorp's closing share price on April 28, 2017.

4/28/17 Live Oak Bank, Reltco Inc., National Assurance Title Inc.

Acquisition Live Oak Bancshares Inc. bought two nationwide title companies in Tampa, Reltco Inc. and National Assurance Title Inc.

4/28/17 Central Valley Community Bancorp, Folsom Lake Bank

Acquisition Central Valley Community Bancorp and Folsom Lake Bank jointly announced that a definitive merger agreement has been signed by both parties. Under the terms of the agreement, Folsom Lake Bank, with three full-service branches located in Folsom, Rancho Cordova, and Roseville, will merge with Central Valley Community Bank.

4/28/17 BayCom Corp, First ULB Corp.

Acquisition BayCom Corp announced the successful acquisition of First ULB Corp., headquartered in Oakland, California, by BayCom Corp and the merger of United Business Bank, FSB into Bay Commercial Bank, effective after close of business on Friday, April 28, 2017.

4/27/17 OnDeck Canada, Lightspeed

Partnership OnDeck Canada, an online lender to small businesses in Canada, and Lightspeed, a cloud-based point-of-sale platform for independent retailers and restaurants, have announced a partnership that will allow Lightspeed users to secure OnDeck loans. The new offering will be available to Lightspeed customers in Canada and the U.S. providing up to $500,000 term loans and $100,000 lines of credit.

4/25/17 Powerlytics, Avant Partnership Powerlytics will provide income insights and data for lending platform Avant.

4/25/17 SmartBiz Loans, Five Star Bank

Partnership SmartBiz Loans, the SBA loan marketplace and bank-enabling technology platform, today announced the addition of Five Star Bank to the Company’s unique technology ecosystem.

4/24/17 First Financial Bancorp, Gayle & Bill Cook Center for Entrepreneurship

Partnership Cincinnati-based First Financial Bancorp is partnering with the Gayle & Bill Cook Center for Entrepreneurship at Ivy Tech Community College Bloomington on a new micro-lending program benefiting small business.

4/21/17 Biz2Credit, Oriental Bank Partnership Biz2Credit has partnered with Puerto Rico’s Oriental Bank to help develop a digital lending platform for the bank’s commercial clients.

4/20/17 Marlin Business Services, NewTek

Partnership Marlin Business Services Corp., a provider of credit products and services to small businesses, announced it has entered an agreement with NewTek, Inc. Marlin will provide financing options for NewTek customers throughout the United States.

4/20/17 AltaPacific Bank, Commerce Bank

Merger AltaPacific Bancorp has terminated the September 1, 2016 Agreement and Plan of Reorganization and Merger with Commerce Bank of Temecula Valley.

4/20/17 United Community Banks, HCSB Financial

Merger United Community Banks, Inc. and HCSB Financial Corporation announced a definitive agreement for United to acquire HCSB and its wholly-owned bank subsidiary, Horry County State Bank, in an all-stock transaction.

4/20/17 ApplePie Capital, Funding Solutions

Acquisition ApplePie Capital, an online lender solely dedicated to the franchise industry, today announced the acquisition of Funding Solutions, LLC, a national franchise lending consultancy that specializes in SBA, conventional and equipment finance loans.

4/19/17 Revolut, Trussle Partnership Through this partnership, Revolut customers will have access to Trussle’s mortgage broking service that has 90+ lenders available — all through the company’s app home screen.




DATE COMPANY BUSINESS DESCRIPTION AMOUNT STRUCTURE USE OF PROCEEDS INVESTORS 5/15/17 Taralite Taralite is a financial technology

startup that focuses on lending money to the unbankables.

$6,300,000 Venture To build a “world class” R&D team that would build algorithm for its future plan to be a one stop shop.

SBI Group

5/12/17 EarlySalary Early Salary Pvt. Ltd. owns and operates an online lending platform. The company offers bridge loan till the next salary credit.

$4,000,000 Venture, Series A

To build products, to expand team, specifically in skill sets of machine learning, to increase its lending book, specifically to grow customer base and provide 200,000 loans in this financial year, and to accelerate growth and the innovation process.

IDG Ventures India, Dewan Housing Finance Corporation Ltd.

5/12/17 Yellowstone Capital

Yellowstone Capital specializes in lending to small businesses who have harder times finding financing.

$75,000,000 Undisclosed To support the growth of its MCA business and to retire an existing debt facility.

Yesco Co.

5/12/17 InterNex Capital

InterNex Capital, Inc. provides working capital financing solutions for small businesses and corporate enterprises.

$3,850,000 Convertible Debt

To expand sales and marketing, scale its business operations and enhance its technology platform.

Undisclosed

5/11/17 AYE Finance

Aye Finance Pvt. Ltd., a non-banking financial company, offers loans to micro enterprises with investments in plants and machinery.

$3,000,000 Debt To ensure financial inclusion for small businesses.

State Bank of India

5/10/17 Bitbond Bitbond operates a peer-to-peer bitcoin lending platform that connects small business borrowers and bitcoin lenders worldwide.

Undisclosed Private Placement

For further product development and marketing and also to continue growing its user base with online sellers and small businesses who need working capital financing.

Obotritia Capital

5/10/17 Kreditech Kreditech Holding SSL GmbH, a real-time scoring technology company, provides online big data scoring technology and machine-learning algorithms services to make better credit decisions.

$119,500,000 Private Placement

To increase access to credit services in high growth, emerging markets including Eastern Europe, India and Latin America.

PayU Group

5/5/17 IceKredit IceKredit is an independent credit evaluation firm for small and micro enterprises.

$16,000,000 Venture, Series A

To expand its third-party credit reporting business, develop broader cooperation with stock-holding banks and urban commercial banks, and improve loan-assistant services for consumer finance companies, micro-loan companies and other funding sources.

China Creation Ventures, Lingfeng Capital

5/5/17 i-lend Operating on a marketplace model, the company connects borrowers and lenders to facilitate personal loans for six to 36 months.

Undisclosed Venture, Seed

To expand to more Indian cities and strengthen its tech infrastructure and on marketing efforts.

50K Ventures

5/4/17 Nav Nav helps small business owners access the financing they need to grow and effectively manage their business.

$13,000,000 Venture, Series B

To expand its marketplace offerings, to introduce more business owners to its platform, drive additional data insights, and continue to disrupt the credit and financing space.

Goldman Sachs, Fintech Investment Fund, Investment Arm, Point72 Ventures, Clocktower Tech. Ventures

5/2/17 IOU Financial

IOU Financial Inc. operates an Internet-based commercial lending platform in the United States.

$3,500,000 Private Placement

To finance small business loans in the Company's target markets of the United States and Canada and for general corporate purposes.

n/a

4/28/17 Tradeplus24 TradePlus24 AG provides receivables financing and insurance services to small and medium companies in Switzerland.

$100,000,000 Debt The new capital will be used to fund future loan growth for Swiss SME.

OceanoOne

4/26/17 QUOVO QUOVO INC. develops and markets a platform that provides financial analytics, data management, and insights to small- and mid-sized investors.

$10,000,000 Venture, Series B

To accelerate the growth of its suite of data analytics offerings.

F-Prime Capital Partners, FinTech Collective, Long Light Capital, Napier Park Financial Partners

4/20/17 DadeSystems DadeSystems, LLP develops payment processing software solutions.

$2,000,000 Venture To accelerate engineering and product enhancement efforts and expand the team.

Ocean Azul Partners

New Investments (April 19 through May 16) During the period April 19 through May 16, 2017, new investment activity in issuers operating in the alternative lending and small business lending segments included the following companies/transactions.




Funds of Interest All data as of May 17, 2017 or last reported date. Information sources include Nasdaq and company websites.

Indices of Interest All data as of May 17, 2017 or last reported date. Constituents refer to either stocks or individual loans included as members of the index. Information sources include Nasdaq and company websites.

SBA Year Over Year Activity Comparison (For week ended May 12, 2017)The following table includes information about Small Business Administration loans for the current year to date, broken down by size, and compares that activity with the similar period from last year in order to gauge changes in credit formation and composition.

INDEX TICKER VALUE CONSTITUENTS TYPE

KBW/Nasdaq Fintech Performance Index KFTX 1,142.76 50 FintechCliffwater Direct Lending Index CDLI 3,139.00 > 6,000 Comm. LoanOrchard U.S. Consumer Online Lending Index n/a 1,503.81 1,320,906 Cons. Loan

FUNDS TICKER MKT. CAP CURRENT PRICE 12-MO. % CHANGE

VPC Specialty Lending (in GBP) VSL n/a 0.810 (7.9%)Ranger Direct Lending (in GBP) RDL n/a 8.89 (10.2%)SME Loan Fund PLC (in GBP) SMIF n/a 98.00 10.7%River North Marketplace Lending (in USD) RMPLX n/a 25.34 n/aFunding Circle SME Income Fund (in USD) FCIF n/a 103.93 3.9%P2P Global Investments PLC (in GBP) P2P n/a 8.68 (0.83%)

2016 2017 YOY CHANGEAll Activity YTD (7A) $13,667,218,543 $14,988,691,500 9.67%Existing vs. New Business (% of All) 65% 35% 64% 36%Size Breakdown Amount Amount$150K and Under $1,350,082,943 10% $1,327,482,700 9%>$150K - $350K $1,592,086,900 12% $1,637,168,700 11%>$350K - $2M $6,467,215,200 47% $6,866,391,300 46%>$2M $4,257,833,500 31% $5,157,648,800 34%

SBA Loan Size BreakdownYTD as of May 12, 2017

SBA Year Over Year Activity Comparison ($Billions)For week ended May 12, 2017




Recent Litigation Related to Small Business & Alternative Lending (April 1 through May 17, 2017) The table below details active litigation involving merchant cash advance companies, factoring firms, and other alternative or small business lenders. Case summaries are drawn from public court filings and are not necessarily complete. For complete and accurate information, refer to the specific case number, where applicable.

PLAINTIFF DEFENDANTTYPE OF LITIGATION

DATE FILED

ATTORNEY FOR PLAINTIFF SUMMARY

DISPUTED AMOUNT

($) CASE # VENUELive Oak Banking Company

Peter Butler/Partners Financial Group, LLC

Small Business Loan

04/06/17 Jessica M. Wilson

Plaintiff alleges default under a March 2013 ten-year promissory note of $1,312,000 at prime +1.75%, also seeks redress via personal guarantee.

$960,037.39 1:17-cv-00719

U.S. District Court Northern Ohio

Hedaya Capital Group. Inc.

Mod Land, Inc., Bruno & Delphine Azra

Factoring 05/01/17 Joseph Cohen PC

Plaintiff alleges breach of a March 2011 factoring agreement and several subsequent settlement agreements. Breaches include failing to repay over advances, failing to mark invoices as payable to Plaintiff, and failing to repay amounts due. Plaintiff also seeks redress via personal guarantee.

$542,413.94 652328 New York County, NY

Merchant Cash and Capital, LLC d/b/a BizFi Funding

New York Meat And Fish Market Corp.

MCA - Receivables

05/06/17 Mark F. Magnozzi

Plaintiff alleges breach of contract, and personal guaranty therefore, regarding a default under the terms of a receivables purchase agreement.

$242,008.56 n/a Suffolk County, NY

Merchant Cash and Capital, LLC d/b/a BizFi Funding

Smoke Depot Hookah & Headshop, Inc.

MCA - Receivables

05/09/17 Mark F. Magnozzi

Plaintiff alleges breach of contract, and personal guaranty therefore, regarding a default under the terms of a receivables purchase agreement.

$200,455.52 n/a New York County, NY

Fundation Group LLC

Shore Sleep Dental Care LLC, John Young, Braces@Brick P.A.

Small Business Loan

04/28/17 Dunlap, Bennett & Ludwig

Plaintiff alleges default of an October 2015 Business Loan Agreement in which Plaintiff agreed to extend $200,000 in credit in return for repayment according to the terms of the agreement and a commercial security agreement granting a first priority interest in certain collateral.

$163,498.65 6146 Fairfax County, VA

OnDeck Capital Inc.

Dry Right, Inc., Kevin Clark

Small Business Loan

04/18/17 David Whitridge

Plaintiff alleges default on a December 2015 Business Loan and Security Agreement pursuant to which OnDeck loaned Defendant $130,000 in exchange for a repayment amount of $157,300.92 via 252 weekly payments of $624.21.

$104,867.28 CL17-999 Arlington County, VA




PLAINTIFF DEFENDANTTYPE OF LITIGATION

DATE FILED

ATTORNEY FOR PLAINTIFF SUMMARY

DISPUTED AMOUNT

($) CASE # VENUEIOU Central Inc. d/b/a IOU Financial

Daytona Wholesale Motorcycles, LLC; Larry Steele

Small Business Loan

05/09/17 Willam M. Lindeman

Plaintiff alleges default on a April 2016 15-month Promissory Note For Commercial Loan in the principal amount of $150,000 to be used to build inventory ahead of peak sales season. Also seeks redress via personal guarantee.

$80,692.03 30776 CICI Volusia County, FL

Merchant Funding Services, LLC

Advanced Lumonics LLC d/b/a MC2 Systems

MCA - Receivables

05/09/17 Kim Landgrover

Enforcement of a Confession of Judgment from Defendant arising from alleged default of a January 2017 Secured Merchant Agreement in which Plaintiff purchased $131,310 in future accounts receivable for $90,000.

$70,291.06 806183 Erie County, NY

Biz2Credit BizLender, Inc. Commercial Breach of Contract

05/11/17 Edward Weissman

Plaintiff accuses Defendant of default on a July 2015 Licensing and Referral Agreement and related statements of work dated March 2016 regarding the design of an online alternative lending platform for which Defendant agreed to pay $32,000 to be followed by $4,500 monthly for two years.

$65,500.00 650855 New York County, NY

Rapid Capital Finance LLC

RDF Field Services

MCA - Receivables

05/02/17 Amy Doyle Plaintiff alleges breaches of July 2015 and September 2015 Merchant Agreements under which Plaintiff agreed to pay $100,000 in return for rights to $131,000 in sales of Defendant's future goods and services in the first instance and $35,000 for $45,850 worth of Defendant's future sales in the second instance.

$63,000.00 09911-0 Montgomery County, PA

Swift Financial Corporation

Pro Chiropractic PC

Arbitration Enforcement

05/08/17 Capehart & Scatchard

Plaintiff is requesting an arbitration award for breach of contract, breach of guaranty, conversion of property and unjust enrichment be entered as a final judgement.

$61,633.38 509062 Kings County, NY

Merchants Advance LLC

Fame Inc. MCA - Credit Card Receivables

05/10/17 n/a Plaintiff alleges default and violation of reps and warranties in an October 2016 Sales Agreement in which Plaintiff agreed to pay $61,000 for $81,894 in future credit card receivables paid via a percentage of each subsequent card transaction.

$52,822.42 604075 Nassau County, NY




Continued from front page

‘Alt-Lenders’

“Once you’re on a UCC listing it’s like blood in the water and you get 10 calls a day about taking more capital,” he says. “So they take a second, a third, a fourth and a fifth, and each one can knock two years off the life of the business. Is it a problem? I think it’s poor choices by the business owners. It’s the easy way, instead of putting in the work to grow the busi-ness naturally.”

There are “some great loan products out there,” Burton says, but there are also some very expensive ones. Navigating those waters for their clients are ostensi-bly what brokers are paid to do, not police borrower behavior.

“It’s a full-time job for me finding true lenders, let alone just somebody looking for money who has a very lim-ited time finding the correct money while they’re trying to run a business,” says Burton.

Alt-Lenders Exacerbating the Problem?

Alt-lenders themselves may actually facilitate loan stacking. Experian said in a blog post earlier this year that a “sig-nificant number” of marketplace lenders do not report their loans to the credit bureau. Lenders are not obligated to report their accounts to the three major credit bureaus and may avoid doing so either to save on the cost of reporting or as a calculated marketing strategy to increase the pool of potential borrowers who might otherwise be disqualified or flagged for stacking.

And when stacking is part of a delib-erate attempt to defraud? Turns out loan stacking can be a lucrative crime.

According to data from TransUnion, stacked loans are four times as likely to be the result of fraudulent activity. TransUnion reports that a 2015 study of fintech lenders shows stacked loans represented $39 million of $497 mil-lion in charge-offs that year, or nearly 8%. “Depending on how fast each lender does their due diligence, it’s possible they won’t know about other loans and appli-

cations until it’s too late,” TransUnion said in the study.

The ripple effect of loose lending stan-dards, stacking and debt consolidation gives investors heartburn, as they tighten the spigot on capital to alternative lend-ers.

Several states, including New York are launching inquiries into alternative lending business practices, including loan stacking and customer poaching through debt consolidation offers.

Stacking has gotten so bad that some lenders send out cease and desist warning letters to competitors who try making loans to existing customers who’ve already been funded, according to one source familiar with the practice. Increasingly, language prohibiting a bor-rower from securing multiple loans from other sources is frequently written into the contract.

“Stacking is a problem most com-monly with MCAs and a number of small business loans,” says attorney Scott Pearson. “There are two ways it can hap-pen. One is a company will apply for more than one type of loan or financ-ing at a time. When underwriting you’re looking at their ability to repay or sell a portion of their receivables. If they get two or more at the same time, both com-panies’ underwriting is compromised. The response to that problem has been largely the development of new under-writing tools. A number of reporting agencies have new products designed to allow companies to see if there are other applications being made at the same time to prevent this.”

Pearson runs the consumer/finan-cial services group at law firm Ballard Spahr.

“The second problem is where there is existing financing in place and an agreement from the borrower that they will not get more financing until the loan is paid off, but they go out and get another anyway,” Pearson says. “The reporting agencies now have tools that tell you when [borrowers] are seeking

more financing as well. So you get a pic-ture in real time.”

New Tools & Biz Dev TacticsMeanwhile, banks are beginning to

rethink their stance on farming out large swaths of the market to alternative lend-ers. Platforms such as SmartBiz offer tools to emulate the alt-lending model.

“SmartBiz acts as a referrer for the customer, referring them to a bank, and the bank licenses SmartBiz’s software so that they can automate their underwrit-ing process to make them 70-90% more efficient,” says Emma Clark, a spokes-woman for the company. “A human still looks at each loan application that Smart-Biz brings to a bank, and 90% of the applications that SmartBiz brings to its banks are funded by the bank.”

SmartBiz has signed five banks to its platform, she says.

David Rabouin, sales manager with World Business Lenders, says his compa-ny is ready to help borrowers consolidate stacked loans under certain circumstances – if they meet asset requirements.

“We’re an asset based lender,” he says. “All of our loans are secured with real estate. We feel comfortable getting them out of it, consolidating if they have a number of loans.”

Efforts to stop loan stacking from happening in the first place are fueling a cottage industry of data-crunching firms that provide fraud analysis in what they promote as “real time.”

Florida-based Clarity Services prom-ises digital solutions to identify borrow-ers who are likely attempting fraud. The company also offers tools to penetrate online applicants’ efforts to conceal their location with IP spoofing, using proxies to connect to a loan application webpage or hiding the unique ID of their laptop or smartphone. One tool helps lenders verify that a consumer’s credit activity has not changed in the hours between underwriting and actual funding – that critical time lapse when stacking can occur.



ALTERNATIVE LENDING REPORTTHE Marketplace Lending

Continued from front page

PeerIQ is reporting strong capital markets activity in MPL, according to its Q1 Marketplace Lending Securiti-zation Tracker. Over the last few years, securitizations in the segment have steadily increased. Peer IQ states that issuance totaled $3 billion in Q1, bring-ing cumulative issuance to $18 billion across 80 deals. The industry continues to experience strong investor sentiment as evidenced by growing deal size and improved deal execution.

Ron Suber, president of Prosper, com-pares the marketplace lending sector to exchange traded funds, noting MPL growth is similar to ETF growth at a similar stage, in keynote remarks at the recent LendIt Conference.

Strong Demand from BorrowersWhile the consensus among industry

insiders who spoke with The Alternative

Lending Report say the MPL sector has experienced fits and starts, it’s upward arch is not in question.

“I’ve been in the small business lend-ing space for nearly 30 years, and I see the marketplace lenders continuing to grow in spite of their past stumbles,” says Joel Pruis, senior director at Cornerstone Advisors, a small business loan specialist in Indianapolis. “They continue to lend and be sought by small business owners to fund their needs primarily due to a pair of big benefits – speed of decision and fund-ing, and ease of application.”

Pruis says that past stumbles, while an unfortunate reality for MPL firms, are not directly related to the business model of marketplace lenders, but due to execu-tion mistakes. “The concept still main-tains a competitive advantage,” he says.

“This is the time to take out a market-place loan if you are a small business owner,”

says Candace Klein, Managing Partner at CXO Solutions, a management consulting firm that works with venture-backed fin-tech companies to prepare for growth.

Klein says that, in an effort to secure national bank partnerships, online lenders are offering better rates and longer terms than ever before. “While I personally believe that this move up-market is not healthy for the lenders or for the industry as a whole, the true beneficiary at this point in the mar-ket is the borrower. Rates are not necessar-ily matching risk profile these days, so small businesses can find some real deals.”

There’s also little doubt the industry will not only survive, but thrive, in the coming years, Klein says. “It will absolutely thrive,” she adds. “But there are likely to be fewer players, and I believe that we will continue to see an upswing in consumer lending over small business lending. And banks and other payments companies will very likely

Finance • Technology • Legal & Regulatory • S

trategy

SmallBusinessLending.io

ALTERNATIVE LENDING REPORT

THE

Turn to True Lender on page 20

ONLINE PLATFORMS HAVE

CHANGED BROKERING DYNAMICS

By Gary M. Stern

Situated in his lower Broadway office, Nick Defonte who runs Broad-

way Advance is in the crosshairs of small business lending. Defonte offers

accounts receivable financing, often in the garment industry or for retailers.

Even as small company finance strategies like factoring have changed the

traditional lending landscape, Broadway Advance still also serves as a broker,

connecting clients to online lenders such as OnDeck, Fundation, Kabbage,

Credibly and ForwardLine, to name a few.

Most online lenders offer a specialty. For example, Kabbage specializes

in lines of credit of $2,000 to $100,000 with a six-month to one-year repay-

ment schedule; Accion lends to businesses open less than six months, and

Rapid Advance advances up to 250% of monthly credit card sales.

In the past, savings banks and community banks issued these small busi-

GLOVES COME OFF IN COLORADO

‘TRUE LENDER’ CASES

By Steve Evans

“True lender” lawsuits filed in Colorado

highlight the ongoing legal ambiguity of

marketplace lenders using the bank partner

model. The latest dispute began earlier this

year when Colorado’s attorney general filed

complaints in state court against Marlette

Funding and Avant of Colorado on behalf

of the administrator of the state’s Uniform

Consumer Credit Code. Later amended

and removed to federal court, the suits

allege violations based on earlier true lender

and loan assignment cases. According to

the complaints, these non-bank companies

are the true lenders because they market

and service loans originated by New Jersey-

based Cross River Bank and WebBank, a

state-chartered institution in Utah. The

banks sell the loans to their partners.

Relevant Litigation Still Pending

In both cases, the AG’s complaint cites

the 2014 case CashCall, Inc. v. Morrisey,

and Madden v. Midland Funding, LLC,

from 2015 as legal authority for claims

alleging usury and other violations of the

state’s Uniform Consumer Credit Code.

Referring to the Madden case, Colo-

rado argues that “a bank cannot validly

assign [federal interest rate exportation]

to a non-bank.” However, in that earlier

Madden case, the dispute involved the

sale and assignment of charged-off debt

– not loan originations under an ongoing

arrangement between a non-bank lender

like Marlette and Avant, and federally

insured institutions like Cross River and

WebBank. The banks earlier this month

jumped into the fray with filings for

declaratory judgment against Colorado.

“The decision in Madden was incor-

rect based on longstanding banking legal

precedent,” says Mike Tomkies, a partner

with Dreher Tomkies in Columbus, OH,

specializing in banking and finance law.

Turn to Brokering Dynamics on page 18

LENDER SATISFACTION

Satisfaction percentages of applicants

who were approved for financing:

Small Bank

Credit Union

CDFI

Large Bank

Online

Lender

5%

3%

1%

15%

19%

15%

19%

22%

24%

35%

80%

78%

77%

61%

46%

SatisfiedNeutral

Dissatisfied

input/output

Source: Small Business Credit Survey, Federal Reserve Banks

Volume 1, No. 1

April 20, 2017

COMMENTARY

Addressing the Lack of Transparency

in Small Company Lending .................

........2

STRATEGY

With SBA Budgets on the Chopping

Block, What’s the Lending

Environment Going Forward? .................

.... 3

LEGAL & REGULATORY

• Recent Litigation Illustrates

Why Merchant Cash Advances

Are Not Loans ................

..................

........6

• Bankrupt NuLook Now

Facing RICO Suit ................

..................

..... 8

NEW TECHNOLOGY

& PRODUCT LAUNCHES

Platform announcements, new

software and services, and notable

product releases. ...............

..................

...... 10

INDUSTRY NEWS

A recap of recent news of

importance to lenders, brokers,

and service providers. .............

.................

12

LOAN TAPE

M&A + Partnerships ................

.................

14

New Investments ...............

..................

..... 15

Indices/Funds of Interest/SBA Activity ....... 16

Credit Conditions/Indicators...............

....... 17

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SUBSCRIBE TODAY

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Technology

Legal & Regulatory

Strategy

Intelligence for small business lenders, brokers and service providers.

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http://www.peeriq.com/assets/PeerIQ MPL Securitization Tracker (1Q2017).pdf

http://www.peeriq.com/assets/PeerIQ MPL Securitization Tracker (1Q2017).pdf

https://www.youtube.com/watch?feature=youtu.be&v=1zq3a5z2K2g&app=desktop




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Marketplace Lending

move into the space to capture unserved demand. We are likely to see consolidation within the industry and a new incumbent insurgence in 2017 and beyond.”

Klein also says she is “heartened” by the recent interest from banks, credit unions and payment facilitators in entering mar-ketplace lending. “Whether that is through partnerships, building their own mouse trap or acquisitions, I believe that this new bench brings strength in data and underwriting to the table for the MPL sector.”

“While the marketplace lending indus-try has had its ups and downs over the past year, overall, the industry has done well,” says Allen Shayanfekr, founder of online real estate investor Sharestates. “That’s especially so as larger and more prominent institutional investors continue to enter the space regularly – indicating the product is becoming more mainstream.”

Additionally, business borrowers seem satisfied with the MPL experience, Shay-

anfekr says. “This highly depends on the platform being worked with, but yes, generally speaking borrowers are getting access to the funding they need,” he notes. “Remember, most MPL platforms have shifted to a pre-funding strategy, meaning borrowers have quicker access to capital.”

A ‘Young’ MarketLike Suber comparing the MPL

industry to ETFs, others say there are other high-profile comparisons to be made – comparisons that favor strong growth for alternative lenders.

“The internet didn’t disappear when the dot-com bubble burst,” says Pruis. “Similarly, a few scandals in online lend-ing won’t be the end of the industry. There are of course issues that the indus-try needs to sort through over time – and better transparency on price and terms should be at the top of that list.”

Another plus: In terms of the customer,

the MPL business model favors high-risk borrowers and not the prime borrowers catered to by the Goldman Sachs’ of the world, which is working in the borrower’s favor – even as firms like Goldman edge into the alternative lending market.

“What’s also very clear is that bor-rowers want to go online to search for credit,” Pruis says. “Which lender wins or loses in providing that service to bor-rowers is unclear – but it’s clear that there will be lending online. The innovation online lenders have introduced, which is providing capital quickly and easily over the internet for small businesses, is not going away. Major players like American Express, Chase, Wells Fargo and oth-ers have all entered the space, indicating that they know this is where the market is moving.”

“Online lending is only 5% of over-all lending to small businesses today,” he adds. “The market is very young.”

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