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ALTERNATIVE LENDING REPORTTHE

Turn to ‘Synthetic’ on page 17

WINNING MCA LAWSUITS: THE DEVIL’S IN THE DETAILS

By Steve Evans

A war on merchant cash advance contracts is raging throughout the country as law firms seek novel ways to free their small business clients from making payback.

An analysis of litigation in multiple states shows usury laws form the foundation of many legal arguments where merchants attempt to dodge their cash advance contracts and get out of paying. On the MCA side, con-vincing the court to understand that the contract represents a sale – not a loan – appears to be the key to winning lawsuits when merchants balk at the terms and won’t pay. By structuring the transaction as a sale, the MCA busi-ness does not need a commercial lending license. Sale contracts also render usury laws inapplicable in most states.

Trolling through court cases reveals some common denominators among

SYNTHETIC IDENTITY FRAUD: THE SILENT KILLER

By Tim Lloyd

Small business loan fraud may not yet pose as great a threat as consumer-orient-ed schemes, but it’s a growing problem, according to Mike Cook, CEO of XOR Data Exchange, a data management solu-tion for enterprises.

Based in Austin, TX, XOR conducted a fraud study that analyzed data from the telecommunications and financial sectors and discovered an uptick in so-called syn-thetic identity fraud perpetrated against small business lenders.

In traditional SIF schemes, scammers construct partially or entirely falsified con-sumer profiles, using data points from pub-licly registered and illicit Dark Web forums, to open new accounts, obtain credit cards or apply for loans. For small business lend-ers, SIF activity may appear in the form of barely scrambled corporate employer iden-tification numbers, altered just enough to confuse lenders’ fraud filters.

A Growing Problem Across Credit Products

Cited as a top-three risk for banks in 2016 by the Wall Street Journal, SIF attacks account for 20% of credit charge-offs, where creditors determine that a debt is unlikely to be paid, and 80% of all credit card fraud losses, according to a 2014 Gartner report.

SIF deceptions enable scammers to open new accounts and apply for fraudu-lent credit products – a crime that syph-oned $966 million from lenders in 2015, according to a 2016 Aite fraud survey.

This year, Aite projects fraud losses related to falsified credit card and demand deposit account loan applications to hit over $1.3 billion. And by 2020, the scam-mers’ haul will surpass $2 billion. But for SME credit, it’s difficult to quantify the damage because lenders will often desig-

Turn to ‘MCA Lawsuits’ on page 18

MCA LITIGATION ECOSYSTEM

MCA Funders1

273300

Active MCA Court Cases2

1 Source: SmallBusinessLending.io Directory2 Source: Approx. number based on Lexis Nexis CourtLink

input/output

Volume 1, No. 4 June 1, 2017

EDITORIALAddressing the Lack of Transparency in Small Company Lending ......................... 2

STRATEGYReview & Preview: Startups Raising Capital for SME Lending Applications ................................................ 3

LEGAL & REGULATORYSmall Business Lenders Raise Concerns About CFPB Data Request .............................................. 4

NEW TECHNOLOGY & PRODUCT LAUNCHESPlatform announcements, new software and services, and notable product releases. ......................................... 6

INDUSTRY NEWSA recap of recent news of importance to lenders, brokers, and service providers. ................................. 7

LOAN TAPEFirms with SME Loan Exposure .................. 9 Indices & Funds of Interest ......................... 9 M&A + Partnerships ................................ 10 New Investments ...................................... 12 SBA Loan Activity ...................................... 14 Recent Litigation ...................................... 15

SmallBusinessLending.io 2 June 1, 2017

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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

Garrett Baldwin Steve Evans

Grant Harvey Tim Lloyd Gary Stern

Production Editor Gary Newman

Operations Lenny La Sala

Technology Tarun Gupta

Miguel Larreynaga

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 Strategy

REVIEW & PREVIEW: STARTUPS RAISING CAPITAL FOR SME LENDING APPLICATIONS

By Steve Evans

Editor’s Note: Given the general interest in startups, we put together this quick anal-ysis of early-stage companies with SME-focused alternative lending applications that are looking for capital on the fundrais-ing/networking website AngelList.

Of the 40 small business lenders new to AngelList in the last year, only two describe any fundraising activity on the platform. Website data also shows half as many new SME lenders have joined AngelList in the first five months of 2017 versus the comparable period one year ago. Several companies have already folded.

Still others feature bare-bones com-pany profiles on the website, suggesting those startups are in their infancy, but those listed below appear to be gaining traction. Their varying approaches to using technology in the sector under-score the challenge of carving out a niche in this crowded market.

Mirador offers a front-end small business lending platform support-ing established lenders with borrower acquisition, digital application, decision making and borrower communication. Mirador claims lenders using its plat-form have seen a 69% increase in effi-ciency, reducing the average cost of origination by $1,550 per loan, support-ing greater profitability. Mirador has raised $10 million since 2014.

Medellin, Colombia-based Gulungo has raised $500,000 in seed capital to advance its customized technology for alternative credit analysis designed to “promote financial inclusion.” The com-pany is offering loans up to $17,000 with terms capped at six months.

ReadyCash says it’s all about “democ-ratizing SME lending.” Backed by SAP, ReadyCash is a data curation and analyt-ics platform which facilitates financing for small and medium sized businesses. Through their network of lenders, they

seek to provide access to short-term financing. For lenders, the company says it provides access to an ecosystem of vet-ted businesses in need of financing.

Honeycomb calls itself the “Kick-starter for business loans.” They offer a debt crowdfunding platform that allows small businesses to borrow directly from their own communities and customers. “Entrepreneurs get access to fair loans so that they can launch or expand their small businesses. Investors receive com-petitive returns and the ability to support businesses they love,” the company says.

Funding Wizards is a new marketplace lending platform “which connects business owners seeking a loan to a vast network of local and national lenders and investors,” the company says. The website claims a 75% approval rate for SME loans.

Fundomate in Los Angeles operates in the merchant cash advance space. The company’s platform eliminates brokers from the environment, instead placing small business owners in direct touch with “20 pre-approved lenders.” Fun-domate bills itself as the only platform “designed to give access to business cash advances at the cheapest possible rates.” The company’s secondary offers include small business loans up to $500,000, though the focus remains on MCAs.

Quick offers “quick” cash advances of $2,500 to $500,000 to small businesses in the beauty and wellness market. Rates start at 15%. A decision from the New York-based company is promised in just a few days.

Invoice factoring is the name of the game at Abacus Marketplace in San Francisco. Abacus maintains an auction platform where businesses can sell out-standing receivables to accredited inves-tors. Abacus is “looking to displace the thousands of increasingly deprecated specialty finance and factoring compa-

nies that occupy this $100bn+ industry.” Abacus claims factoring rates are up to 2% better than industry averages.

Global Business Lending out of Ft. Lauderdale, does microloan and MCA deals of $2,000 to $500,000 for small businesses in the U.S. and Canada, with an average approval-to-fund time of 48 hours. They also offer consumer financ-ing programs to help merchants boost sales by selling on credit. The company runs on a Millennial Solutions platform.

Prosperity Funding focuses on asset-based lending, factoring, MCAs, purchase order and receivables finance for SMEs in the U.S. and Canada. The Ft. Lauderdale company has been in business since 2006. Prosperity specializes in solutions for the staffing industry. Founder Dale Busbee’s background includes executive search in temp staffing.

Across the pond in Nottingham, UK, Blue Zest promotes SME secured busi-ness loans. The company uses a tech-nology that reviews the applicant and renders an underwriting decision typi-cally within an hour.

MTC Financial Network in Chery Hill, NJ, expanded f rom mortgage lending into small business loans from $25,000 to $1.5 million. Although more than 21 years old, the company joined AngelList within the last year ostensibly to promote its referral marketing services. It does not show any fundraising activity.

Capital Advance Solutions in New Jersey specializes in merchant cash advance, equipment financing and pay-ment processing. They cite “flexibility and adaptability” as their key competitive advantages in the MCA space. No fun-draising activity has been recorded since the company set up an AngelList profile a year ago. The company claims it has secured $185.7 million in loans to 7,500 businesses.

https://angel.co/



ALTERNATIVE LENDING REPORTTHE Legal & Regulatory

SMALL BUSINESS LENDERS RAISE CONCERNS ABOUT CFPB DATA REQUEST

By Garrett Baldwin

The seven-year history of the Consum-er Financial Protection Bureau (CFPB) is best defined by its efforts in the consumer credit, mortgage, payday loan and debt col-lection industries. Having addressed an endless number of perceived issues in those areas, the bureau has turned its attention to small business lending.

On May 9, the CFPB requested public comments on credit access to small, minor-ity-owned, and women-owned businesses.

Specifically, the CFPB is addressing the implementation of Section 1071 of the Dodd-Frank Act. The 2010 law amended the Equal Credit Opportunity Act to require financial institutions to compile, maintain and report informa-tion concerning credit access to the three recipient categories. Section 1071 would require lenders to collect 13 different data points during loan applications. The

CFPB would like to amend this provi-sion to include a borrower’s demographic information.

The government has collected little data on small business lending, with the exception of loans handled by the Small Business Administration. Meanwhile, rules have prohibited the collection of gender and racial data.

In its request, the CFPB has asked industry participants to define small busi-ness lending, what lending data on small companies, women-owned companies and minority-owned companies is available, and the types of institutions that should comply with data compilation rules.

Trade Associations Push for Extension

Responses have been limited so far and the CFPB has placed a narrow win-

dow on public comments. The Elec-tronic Transactions Association and 12 other trade groups have requested a two-month extension beyond the July 14 deadline. “We want to get this right. If it takes more time to do so, then that is time well spent,” Scott Talbott, Senior Vice President of Government Relations at the Electronic Transactions Asso-ciation, said in a conversation with The Alternative Lending Report.

Talbott lists the novelty of these changes, the complexity of the request, and concerns about potential misuse as the leading reasons for an extension. Even the more mundane questions – such as how to define a small business – is a difficult challenge. One might think it would be wise to ask the Small Business Administration to provide that answer; however, Talbott said this ques-

COMMENTS IN RESPONSE TO THE CFPB’S REQUEST FOR INFORMATION ON SMALL BUSINESS LENDING

COMMENTER ORGANIZATION POST DATE ID SUMMARY OF COMMENTS

Jane Lovig (Not provided) 5/18/17 CFPB-2017-0011-0002 Comments suggest that the lending data being proposed for collection duplicates data currently compiled and submitted to USDA, SBA, CDFI, OFN, and the Microenterprise Census Tracker.

Barry Mills American Bankers Association

5/24/17 CFPB-2017-0011-0003 The following trade associations submitted a joint letter to ask the CFPB to extend the comment period until September 12, 2017: American Bankers Association, American Financial Services Association, Consumer Bankers Association, Credit Union National Association, Electronic Transactions Association, Equipment Leasing and Finance Association, Financial Services Roundtable, Independent Community Bankers of America, National Association of Federally-Insured Credit Unions, National Federation of Independent Business, Small Business & Entrepreneurship Council, Truck Renting and Leasing Association, U.S. Chamber of Commerce.

Kent Franzen (Not provided) 5/26/17 CFPB-2017-0011-0004 Comments included answering 15 questions posed by the CFPB in their request for information. The commenter reports experience in commercial and consumer lending and servicing, loan collections, compliance for loans and deposits, call report completion, exam and examiner communications, policy and procedure composition, information technology and computer systems operations, collateral repossession and sale.

Wendy Baumann WWBIC 5/30/17 CFPB-2017-0011-0007 Comments consist of marketing materials and assorted information. No material comments were provided.

Joe Short (Not provided) 5/31/17 CFPB-2017-0011-0006 Comment consists of a brief statement concerning business risk. No material comments were provided.

Comments can be submitted to the CFPB on or before July 14 on the Regulations.gov website at the link indicated.

http://files.consumerfinance.gov/f/documents/201705_cfpb_RFI_Small-Business-Lending-Market.pdf

http://files.consumerfinance.gov/f/documents/201705_cfpb_RFI_Small-Business-Lending-Market.pdf

https://www.regulations.gov/document?D=CFPB-2017-0011-0002







ALTERNATIVE LENDING REPORTTHE Legal & Regulatory

tion is not an easy task to complete. “Different companies and entities define a small business in different ways,” he said. “There isn’t one set definition.”

The CFPB’s request has set the stage for debate on how the industry can com-ply, the impact on smaller community lenders, and how government officials and consumer advocates will use the data. Talbott explained the proposed purpose of the CFPB’s data request.

“If you bifurcate the data, all of the financial data is collected. [The CFPB] is looking for institutions to collect new data on small business lending,” Talbott said. “What is prohibited by Reg B [of The Equal Credit Opportunity Act] is the collection of the gender or race of the applicant. What they are trying to do is amend Reg B and collect this data ‘voluntarily.’”

Talbott said that if a borrower applies for a loan, the CFPB will request lend-

ers to ask questions on race and gender. Potential borrowers have a choice on whether to answer these questions before moving forward. However, this informa-tion cannot be a part of the loan screen-ing process. “The next piece here for the CFPB rules is that once you’ve collected this data, the data must be walled off from the credit decision,” Talbott said.

Such data aggregation poses two fur-ther questions: First, what is the cost impact of such data mining for institu-tions of various sizes? Second, for what reasons will this information be used by the CFPB and consumer advocates?

So far, the industry has raised con-cerns about both issues.

Scant Resources at Lending Institutions of Concern

Talbott said that compliance may not be difficult for larger lenders with resources or for online lenders. “An all-

digital lender can probably accom-plish this easier than a smal ler institution [like a community bank]. We are being asked by the CFPB to add boxes to the application with a note that says the decision to answer is voluntary. Online lenders will create a system where the data flows to a dif-ferent storage site, while the rest of the application is sent to the under-writing depart-ment.”

But commu-nity banks with fewer employees and resources may struggle to comply with this request.

Kent Franzen, a banker from Hender-son, Nebraska, publicly commented that small banks with very few employees would struggle to separate the individu-als in charge of data collection from the lending decision.

“In every small bank I have worked in or am otherwise familiar with the loan officer is the primary borrower con-tact, the loan data collector, the primary underwriter, the author of the loan doc-uments, the notary public for collateral documents and the loan servicing agent,” Franzen wrote. “This requirement is literally impossible to comply with in a community bank.”

The bank may need to explore out-sourcing this function or hire new employees simply for the purpose of aggregation.

Franzen also raised concerns about the way that such data will be inter-preted should the statistics imply that women- and minority-owned businesses do not receive the same level of loans, but they may not be facing any discrimi-nation.

“I am very concerned that the so-called disparate impact analysis will be used as a persecution instrument against smaller institutions that present a [polit-ically] expedient target of opportunity,” Franzen wrote.

Talbott said that other industry play-ers worry about the use of this informa-tion in the future.

“The concern from the industry is that data will be made public to try and sue the institution for violations of fair lending laws,” he said.

Such concerns are not unwarranted given the CFPB has a murky history determining the validity of discrimina-tion cases. During its time exploring discrimination in the auto loan industry, the bureau attempted to extrapolate data from ZIP codes and surnames to guess the race of loan applicants.

The CFPB is expected to respond to the trade associations’ extension request in the coming weeks.

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ALTERNATIVE LENDING REPORTTHE New Technology &

Product Launches

Sage Pay Goes All-in on SME Lending

Sage Pay, a payment processing firm for small businesses, has stepped into alternative lending with the launch of Sage Pay Business Finance through a collaboration with alternative lender Liberis. Through the program, SMEs can receive a cash advance equivalent to up to one month’s worth of card receipts with a fixed fee. bit.ly/2sbKJPW

Orca Announces Launch of Proprietary Rating for P2P Investments

Orca, the UK-based P2P data, research, and analysis provider announced plans to launch its own four-factor rating service for individual P2P providers called the Orca Rating. bit.ly/2sjpw60

Fintech Player Linked Finance Gets Green Light from UK Regulator

After a two-year application process, Irish P2P lender Linked Finance has been given full authorization from the UK’s Financial Conduct Authority. To date, the company has facilitated more than 870 loans and more than €25M in funding for Irish SMEs. bit.ly/2r930PB

Deloitte Launches Enhanced Digital Banking Offering

Deloitte launched its enhanced Digital Bank offering to further accel-erate digital transformations for banks. Based on the Salesforce Intelligent Customer Success Platform and utiliz-ing the Salesforce Financial Services Cloud, Digital Bank provides tailored banking capabilities with accelerated

implementat ion. bit.ly/2sjLkOT

Dianrong Announces Technology Agreement Outside of Mainland China

D i a n r o n g announced a new technology agree-ment with Mag-gie Ng, a banking executive in Asia Pacific, to launch the first global fintech market-place connecting Asian investors with high-quality, low-volatility and untapped a s s e t classes, including U.S. lending. The

new strategic alliance combines Dian-rong’s advanced technology with Ms. Ng’s consumer-lending experience. bit.ly/2qxElVZ

Misys Using AI to Detect Booking Oddities

Misys, a provider of software for banking services, launched FusionCapi-tal Detect to use artificial intelligence to assist validation teams by identifying probable mistakes which are cumber-some to find by humans, thereby reduc-ing the chance decisions are informed by erroneous data. bit.ly/2qyGvAG

Eastern Bank Spinoff to Give Banks Fintech Capabilities in Small Business Lending

Eastern Bank has spun off Numerat-ed Growth Technologies, a startup that lets banks make small-business lending decisions in less than five minutes, and has since raised upwards of $9M in seed money. As a condition of the deal, the three-year-old innovation unit Eastern Labs, led by Dan O’Malley, joined the spinoff. bit.ly/2r8YMr9

Business Credit Reports Launches Multi-Bureau Business Reports

Business Credit Reports, a pro-vider of business credit information in the U.S., has announced a new line of comprehensive business credit reports. BCR’s line of proprietary company reports has been reinvented and packed with new information and advanced analytics to provide credit managers with fresh insights. bit.ly/2sc0C8X

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RateSetter Confirms IPO Plans and Aims to Increase Asset-based Finance

RateSetter’s chief executive Rhydian Lewis confirmed the peer-to-peer plat-form is eyeing an initial public offering to position itself as an “investor brand.” He also said the business and consumer lender would not expect or be interested in any takeover approaches from banks as it focuses on bringing the business public. bit.ly/2rlv56F

Equipment Leasing & Finance Association’s Monthly Index

The Equipment Leasing and Finance Association’s Monthly Index, which reports economic activity from 25 com-panies representing a cross section of the $1 trillion equipment finance sector, showed overall new business volume for April was $7.9 billion, up 8% year-over-year from new business volume in April 2016. Volume was down 11% month-to-month from $8.9 billion in March. bit.ly/2qxtvj2

LSQ Looks to Expand Factoring, Financing to Furniture Segment

LSQ Funding, an invoice finance/fac-toring firm, is expanding its business to encompass the furniture sector and has brought Roger Portaro, a 20-year com-mercial finance veteran on board as vice president of business development to head the effort. Portaro says the compa-ny has identified a gap in the under $20 million segment and is looking to pro-vide solutions, including longer purchase order cycles. bit.ly/2qxi36V

Victory Park Capital Sells Funding Circle U.S. and Upstart Loans

Victory Park Capital Specialty Lend-ing Investments announced that it has sold the majority of its Funding Circle

U.S. and Upstart marketplace loans. The London-listed investment trust said that the loans sold represented 3.65% and 1.48%, respectively, of the compa-ny’s net asset value as of March 31. bit.ly/2rhPkA1

SEC Reportedly Looking into Activities of CAN Capital and Prosper

Bloomberg reported that the SEC is looking into CAN Capital “after that firm failed to report to bondholders that some customers’ loans were in default.” The news comes shortly after Bloom-berg also reported that online consumer lender Prosper is being probed by the SEC after they disclosed they had over-stated investor returns. bit.ly/2rltJsw

Close Loopholes for Online Lenders, New York Regulator Urges

Online lenders are evading New York regulations by claiming their loans are “made” by federally chartered or out-of-state partner banks, the state’s top finan-cial regulator told lawmakers in Albany. The superintendent of the NY State Department of Financial Services, Maria Vullo, urged legislators to clarify the statutory definition of “making loans” to include a wider range of companies. bit.ly/2rltJsw

FINRA Releases Guidance on Digital Communications Via Social Media

The Financial Industry Regulatory Authority took on social media in new guidance that attempts to apply exist-ing rules governing communications to online networking platforms. The guid-ance, Regulatory Notice 17-18, offers feedback on how existing rules and guid-ance apply to communications made by firms and registered representatives via social media sites or using personal devices. bit.ly/2sjEh8X

Senator Collins Introduces Legislation to Protect Community Banks

U.S. Senator Susan Collins intro-duced legislation to allow financial regulators to exempt small community banks from burdensome requirements, known as the Community Bank Sen-sible Regulation Act of 2017. The bill would protect small financial institutions from highly complex regulations that are intended for larger banks whose failure would risk the collapse of the financial system. bit.ly/2rlMIDa

OnDeck Announces Extension of $100M Credit Facility with SunTrust

OnDeck announced an extension of its current asset-backed revolving credit facility with SunTrust Bank. As a result of the transaction, OnDeck extended the maturity date of its $100 million credit facility with SunTrust Bank to Novem-ber 2018 and decreased its funding cost by 50 basis points. bit.ly/2qDWBZf

Credit Unions Setting Records in Vibrant Economy

Industry analysts say credit unions are setting new records and outperform-ing banks this year as the U.S. economy remains robust. Credit union growth is being fueled by record numbers of new members and current members borrow-ing more heavily, with members earning more on average, which is reflected in higher balances and greater borrowing for cars and homes. bit.ly/2rSfPyK

Long-Term Lender Confidence in U.S. on Decline

According to the Q2 “Lending Cli-mate in America” survey by Phoenix Management, results show lender confi-dence in the U.S. economy in the long term continuing to deteriorate and con-tinuing on a trend of lenders increasing

Industry News

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ALTERNATIVE LENDING REPORTTHE Industry News

pessimism about the future. Optimism on how lenders expect the economy to perform beyond the next 6 months has fallen, and their confidence in the U.S. economy during the next 6 months decreased slightly. bit.ly/2qz3DPB

Research Says Poland, Greece and Ireland have Highest Potential for P2P

According to new research from P2P lending platform TWINO and KPMG, in terms of the largest potential for the alternative finance sector, the highest ranking European countries are Poland, Greece and Ireland. Meanwhile, coun-tries including Hungary, Slovenia and Latvia rank among the best countries for the alternative lending sector today. bit.ly/2rSy1Z5

C&H Financial Services Secures Credit Facility with Comvest

C&H Financial Services announced its partnership with Comvest Partners through its lending strategy, Comvest Capital to support C&H’s future growth and acquisitions. C&H processes over $1.2 billion as a U.S. merchant acquirer and financial services company, provid-ing credit and debit card processing, small business loans, merchant cash advances, residual based lending, POS systems, gift card and customer loyalty programs. bit.ly/2sbNPDv

BizEquity and Equifax Launch BizEstimate Score

BizEquity, an online provider of busi-ness valuation big data, announced a

strategic relationship with global infor-mation solutions provider Equifax to offer a new business valuation tool for helping financial professionals prospect more effectively and small business own-ers to better understand their business worth. bit.ly/2sc4zL8

Laurentian Bank Will Acquire Inventory Finance Company

Laurentian Bank of Canada announced it has reached a definitive agreement under which a subsidiary of the bank will acquire inventory finance lender Northpoint Commercial Finance, which maintains a portfolio of $1.2 bil-lion. The transaction is expected to close before the end of fiscal 2017, subject to customary closing conditions, includ-ing applicable regulatory approvals. bit.ly/2rCpDgN

Finance • Technology • Legal & Regulatory • S

trategy

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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

Call us today at (516) 876-8006. Don't miss this offer.

SUBSCRIBE TODAY

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Technology

Legal & Regulatory

Strategy

Intelligence for small business lenders, brokers and service providers.

You'll receive discounted launch pricing of only $995 and complimentary access to our Small Business Lending Directory.

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ALTERNATIVE LENDING REPORTTHE Loan Tape

COMPANY TICKERMKT. CAP

($M) CURRENT

PRICE12-MO.

CHANGESMALL BIZ LOAN %

Signature Bank SBNY 7,726.08 142.83 5.7% 14.4%Glacier Bank GBCI 2,483.25 31.65 15.8% 3.5%United Community Bank UCBI 1,855.99 25.77 27.6% 6.7%Towne Bank TOWN 1,803.75 28.80 31.8% 4.3%Peoples Independent Bank INDB 1,662.48 60.10 21.9% 4.2%Ameris Bank ABCB 1,632.49 43.00 34.9% 6.8%BancFirst BANF 1,508.71 93.10 48.4% 3.8%Pacific Premier Bank PPBI 1,363.23 33.65 34.4% 7.7%State Bank Financial STBZ 990.54 25.13 15.6% 3.7%Sandy Spring Bank SASR 919.89 38.24 30.1% 4.3%German American Bancorp GABC 707.60 30.59 42.5% 7.0%Farmers & Merchants Bank FMCB 485.22 600.00 10.7% 31.5%Macatawa Bank MCBC 314.33 9.22 28.8% 7.8%Southern First Bank SFST 249.52 33.90 32.4% 9.0%Bank First National BFNC 235.36 35.05 25.2% 9.2%Howard Bank HBMD 186.06 19.00 44.5% 8.9%Sunshine Bank SBCP 178.18 22.10 50.3% 7.1%Pacific Mercantile Bank PMBC 177.30 7.65 5.5% 7.3%Commonwealth Business Bank CWBB 138.70 15.25 46.6% 5.9%California Bank of Commerce CABC 116.45 19.82 47.0% 16.8%NorthEast Community Bank NECB 102.90 8.60 30.3% 3.1%

COMPANY TICKERMKT. CAP

($M) CURRENT PRICE ($)

12-MO.CHANGE

American Express Bank AXP 68,901.44 76.64 16.55% Intuit Inc. INTU 35,883.18 140.72 31.93% Prospect Capital Corp. PSEC 2,904.71 7.97 6.12 %The Pitney Bowes Bank PBI 2,810.57 14.86 (20.24%)FS Investments FSIC 2,255.41 9.15 3.39% Main Street Capital Corp. MAIN 2,147.43 38.16 18.67% Hercules Capital, Inc. HTGC 1,079.51 13.01 6.03% TPG Specialty Lending TSLX 1,242.14 20.79 26.77% Golub Capital BDC GBDC 1,165.10 20.39 17.52% New Mountain Finance NMFC 1,103.35 14.63 16.26% TCP Capital Corp. TCPC 1,000.64 16.93 15.77% Solar Capital Ltd. SLRC 914.95 21.73 18.03% Goldman Sachs BDC GSBD 901.26 22.41 13.07% Fifth Street Finance Corp. FSC 575.12 4.12 (16.43%)PennantPark Investment PNNT 535.09 7.52 15.87% BlackRock Capital Investment BKCC 563.77 7.77 0.58 %

COMPANY TICKER LOAN TYPECURRENT PRICE ($)

12-MO.CHANGE

China Rap. Finance XRF Cons. (China) 6.99 n/a

Elevate Credit ELVT Consumer 7.00 n/a

Enova ENVA Cons./Bus. 13.275 82.3 %IOU Financial IOU Business 0.16 (45.0%)Lending Club LC Cons./Bus. 5.49 15.3 %NewTek NEWT Business 17 30.0 %

OnDeck ONDK Business 3.55 (31.3%)OneMain Financial OMF Consumer 22.57 (24.5%)Square SQ Business 23.14 142.8 %

Yirendai YRD Cons. (China) 23.27 60.5%

Select Banks with Significant Exposure to Small Business Loans A cross-section of publicly traded community banks with market capitaliza-tions of at least $100M and at least 3% 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 31, 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 31, 2017.

Online Lenders Publicly traded companies engaged in online lending to con-sumers as well as businesses. Market data as of May 31, 2017.

FUNDS TICKERCURRENT PRICE ($)

12-MO. % CHANGE

Funding Circle SME Income Fund (in USD) FCIF 104.00 4.79%

P2P Global Investments PLC (in GBP) P2P 8.80 0.63%

Ranger Direct Lending (in GBP) RDL 8.56 (13.52%)River North Marketplace Lending (in USD) RMPLX 24.99 n/aSME Loan Fund PLC (in GBP) SMIF 97.39 2.52%

VPC Specialty Lending (in GBP) VSL 0.82 (5.60%)

Funds of Interest All data as of May 31, 2017 or last reported date. Information sources include Nasdaq and company websites.

Indices of Interest All data as of May 31, 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.INDEX TICKER VALUE CONSTITUENTS TYPE

KBW/Nasdaq Fintech Performance Index KFTX 1,175.85 50 FintechCliffwater Direct Lending Index CDLI 3,139.00 > 6,000 Bus. LoanOrchard U.S. Consumer Online Lending Index n/a 1,503.81 1,320,906 Cons. Loan




DATE COMPANIES STRUCTURE DEAL DESCRIPTION5/30/17 Banco BNI Europa, Raize Partnership Banco BNI Europa, a Lisbon based digital only banking group, has announced a strategic agreement with

Raize, a Portugal based peer to peer lender.

5/25/17 Horizon Bancorp, Lafayette Community Bancorp

Acquisition Horizon Bancorp in Michigan City, Ind., has agreed to buy Lafayette Community Bancorp in Indiana. The $3.2 billion-asset Horizon said it will pay $32 million in cash and stock for the $172.1 million-asset Lafayette. The deal is expected to close in the third quarter.

5/25/17 Sage Pay, Liberis Partnership Sage Pay, a payment processing firm for small businesses, has stepped into alternative lending, announcing the launch of Sage Pay Business Finance. The result of a new collaboration with alternative lender Liberis, SMEs can receive a cash advance equivalent to up to one month’s worth of card takings with a fixed fee.

5/24/17 Goldmoney, LBT Holdings

Partnership Goldmoney, a precious metal financial service and technology company, announced an investment in and partnership with investment company LBT Holdings, the parent company of Lend & Borrow Trust Company, a U.K.-based online platform offering auction-rate P2P lending and borrowing collateralized by precious metals.

5/24/17 MW Eaglewood, Pollen Street Capital

Merger The respective managers of the UK-based £822M P2P Global Investments and the £200M HoneyComb investment trusts will merge, creating one of the largest specialist asset management firms focused on non-bank lending.

5/24/17 SmartFinancial, Capstone Bancshares

Acquisition SmartFinancial has agreed to buy Capstone Bancshares. The $1 billion-asset SmartFinancial said in a press release that it will pay $84.8 million in cash and stock for the $510 million-asset Capstone, valuing Capstone at 159% of its tangible book value.

5/23/17 C&H Financial Services, Comvest Partners

Partnership C&H Financial Services, Inc. announced its partnership with Comvest Partners through its lending strategy, Comvest Capital to support C&H’s future growth and acquisitions.

5/23/17 Great Southern Bank, nCino

Partnership Cloud banking service provider nCino announced that $4.4 billion-asset Great Southern Bank has selected the company's Bank Operating System to increase speed and enhance the simplicity of its commercial loan process.

5/23/17 Union Bankshares Corporation, Xenith Bankshares

Acquisition Union Bankshares Corporation and Xenith Bankshares announced a definitive merger agreement for Union to acquire Xenith in an all-stock transaction.

5/23/17 Qualtrust Credit Union, Texas Trust Credit Union

Merger Members of Qualtrust Credit Union have agreed to merge with Texas Trust Credit Union. Qualtrust members voted on May 18 in favor of the merger, allowing the two credit unions to join forces.

5/23/17 BizEquity, Equifax Partnership BizEquity announced a strategic relationship with Equifax to offer a new business valuation tool to help financial professionals prospect more effectively and small business owners better understand their business worth.

5/22/17 OnDeck, Franchise Council of Australia

Partnership OnDeck announced a partnership with the Franchise Council of Australia, the peak body for the franchise sector in Australia.

5/19/17 Laurentian Bank, Northpoint Commercial Finance

Acquisition Laurentian Bank of Canada announced that it has reached a definitive agreement under which a subsidiary of the Bank has agreed to acquire Northpoint Commercial Finance.

5/18/17 FormFree, Black Knight Financial Services

Partnership FormFree announced the direct integration of its AccountChek automated asset verification service with the LoanSphere Empower loan origination system offered by Black Knight Financial Services, provider of integrated technology, data, and analytics to the mortgage and real estate industries.

5/17/17 Crossroads Capital Finance, MediXall

Partnership MediXall Group will offer financing products to serve health care providers and their patients through a partnership with financial consulting firm TBG Holdings and its affiliate Crossroads Capital Finance Group.

5/16/17 Mediaplanet, Reliant Funding

Partnership 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.

M&A + Partnerships (May 3 through May 30) During the period May 3 through May 30, 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 DESCRIPTION5/16/17 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

5/3/17 Seacoast Commerce Banc, Capital Bank

Merger 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.




DATE COMPANY BUSINESS DESCRIPTION AMOUNT STRUCTURE USE OF PROCEEDS INVESTORS 5/30/17 Lendit Lendit develops and operates an

online platform that offers peer-to-peer consumer lending services.

$8,900,000 Venture, Series B

To focus on research and development and nurture IT and finance specialists.

Altos Ventures, YellowDog, Collaborative Fund

5/30/17 RateSetter RateSetter offers an online application for peer to peer lending.

$16,738,800 Undisclosed To fund its expansion as it prepares to offer an innovative finance ISA.

Neil Woodford, Artemis

5/26/17 IOU Financial Inc.

IOU Financial Inc., through its subsidiary, IOU Central 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.

Undisclosed

5/25/17 Blispay Blispay inc. develops a mobile application for paying bills online.

$12,000,000 Venture, Series A

To accelerate the marketing and sales outreach for its financing platform, and to hire in sales and add more merchants to its financing platform.

FirstMark Capital, L.L.C., Accomplice, LLC, New Enterprise Associates, Camden Partners Holdings, LLC, F-Prime Capital Partners

5/25/17 Springleaf Finance Corporation

Springleaf Finance Corporation, a consumer finance company, provides personal loans and insurance products.

$500,000,000 Debt General Corporate Purposes / Working Capital, Redemption/Repayment of Debt Securities, Other.

OneMain Holdings, Inc

5/25/17 OnDeck On Deck Capital, Inc. operates an online platform for small business lending in the United States, Canada, and Australia.

$100,000,000 Debt To create additional funding capacity to pave the way for future loan growth.

SunTrust Bank

5/25/17 AYE Finance

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

$8,000,000 Debt To improve its technology stack for better data insights and the rest of it towards giving loans to new and existing customers.

Blue Orchard

5/19/17 PaySense PaySense Services India Private Limited provides EMI plans for online and offline purchases.


To invest in its technology and also to expand team and to take product to more cities than the nine where the company currently operates in.

Jungle Ventures, Naspers Ventures, Nexus Venture Partners

5/19/17 BlackRiver Business Capital

BlackRiver Business Capital is a direct lender in the commercial equipment finance industry.

$20,000,000 Debt To invest in growth and effectively implement the long-term business plan.

SunTrust Bank

5/18/17 Qupital Qupital operates an online invoice trading platform that allows companies to raise finance against their receivables by connecting them with investors interested in a new asset class.

$2,000,000 Venture, Seed

Qupital will use the proceeds to enhance its technology platform and also to facilitate expansion in the region.

G10 Anson Roadobi Partners, Hong Kong Entrepreneurs Fund, Mindworks Ventures, DRL Capital, The Aria Group

5/17/17 Prosper Prosper Marketplace, Inc., together with its subsidiaries, develops a peer-to-peer online credit marketplace in the United States.

$450,500,000 Debt Undisclosed Credit Suisse, Soros Fund Management

New Investments (May 3 through May 30) During the period May 3 through May 30, 2017, new investment activity in issuers operating in the alternative lending and small business lending segments included the following companies/transactions.




DATE COMPANY BUSINESS DESCRIPTION AMOUNT STRUCTURE USE OF PROCEEDS INVESTORS 5/16/17 IOU

Financial Inc.

IOU Financial Inc., through its subsidiary, IOU Central Inc., operates an Internet-based commercial lending platform in the United States.


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

FinTech Ventures Fund, LLLP

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.


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 Undisclosed MCA Company

Not Applicable $75,000,000 Undisclosed To support the growth of its merchant cash advance business.

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 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.


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.


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, and Clocktower Technology Ventures




SBA 504 LOANS 2016 2017 YOY CHANGEAll Activity YTD $2,978,118,000 $3,403,178,000 14.27%Existing vs. New Business (% of All) 65% Existing 35% New 64% Existing 36% NewSize Breakdown Amount Amount$150K and Under $38,558,000 1% $43,477,000 1%>$150K - $350K $247,890,000 8% $277,085,000 8%>$350K - $2M $1,657,065,000 56% $1,890,164,000 56%>$2M $1,034,605,000 35% $1,192,452,000 35%

Total SBA 7(a) and 504 Breakdown By Loan SizeYTD as of May 26, 2017

Total SBA 7(a) and 504 Loan Activity Comparison ($Bil.)Year over year for week ended May 26, 2017

SBA 7(a) Year Over Year Activity Comparison (For week ended May 26, 2017)The following table includes information about Small Business Administration 7(a) loans 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. SBA 7(a) loans are utilized primarily for such things as general working capital, acquisitions, real estate and debt refi-nancing, usually carry a variable coupon rate, and can range from 5 to 25 years in length.

SBA 7(a) LOANS 2016 2017 YOY CHANGEAll Activity YTD $14,842,244,543 $16,028,050,100 7.99%Existing vs. New Business (% of All) 65% Existing 35% New 64% Existing 36% NewSize Breakdown Amount Amount$150K and Under $1,447,990,543 10% $1,428,608,000 9%>$150K - $350K $1,721,251,600 12% $1,764,268,300 11%>$350K - $2M $7,023,0,200 47% $7,326,977,400 46%>$2M $4,649,112,200 31% $5,508,196,400 34%

SBA 504 Year Over Year Activity Comparison (For week ended May 26, 2017)The following table includes information about Small Business Administration 504 program 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. SBA 504 loans are utilized primarily for financing commercial real estate purchases, construction projects, and the purchase of heavy machinery & equipment. 504 loans usually require a minimum 10% down payment, carry a fixed coupon rate and are typically available at 10 and 20-year terms.

$25

$20

$15

$10

$5

$0




Recent Litigation Related to Small Business & Alternative Lending (May 17 - May 31, 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. Disputed amounts do not include requests for attorney’s fees. 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 # VENUEForward Financing LLC

Regenesis Health Services, Inc., d/b/a St. John's Medical; John Blosser; Shawn Andersen

MCA - Receivables

05/30/17 Kimberly Emerling

Plaintiff accuses Defendant(s) of default on an April 2016 Future Receipt Sales Agreement under which Plaintiff purchased $268,000 in future receipts for $200,000, to be paid by monthly installments not to exceed 10% of receipts in any given month; Plaintiff also seeks redress via indemnification agreements with Blosser and Andersen

$144,494.36 1:17-cv-10986

U.S. District Court MA

Growth Capital International LLC

Joseph Grusser, Karthik Kasirajan, and Titan Investment Holdings LLC

MCA - Receivables

05/27/17 Jonathan E. Levitt

Plaintiff alleges default, breach of contract, unjust enrichment, fraudulent inducement and conversion related to a December 2016 working capital loan agreement with Titan Molecular Labs and related guarantor agreements.

$106,311.79 2:17-cv-03171

U.S. District Court Eastern NY

Capital Lending LLC

John Carroll, Michael Farraguto Jr.

Small Business Loan

05/26/17 Adam Shaw Plaintiff alleges Defendants are jointly and severally liable for repayment of a defaulted December 2009 secured commercial loan to Ocean Atlantic Woodland Corp.

$1,280,306.67 1:17-cv-00612-TSE-MSN

U.S. District Court Eastern VA

BMO Harris Bank N.A.

Boston Trucking, LLC; Nekita Boston

Small Business Loan

05/26/17 White & Allen, P.A

Plaintiff alleges default and breach of contract regarding a September 2015 Loan and Security Agreement originated with GE Capital, the rights to which were assigned to Plaintiff in December 2015, and which is collateralized by two tractors. Plaintiff seeks injunctive relief regarding the collateral and redress under the Agreement and related personal guarantee

$95,848.45 4:17-cv-00072

U.S. District Court Eastern NC

Global Merchant Cash Inc.

Joseph Unlimited Inc. d/b/a A2B Driving School; Hughes Joseph

MCA - Receivables

05/26/17 Joseph Sussman

Plaintiff alleges defaults of a Merchant Agreement, Business Advance Agreement, and Security Agreement and Guaranty signed in February 2017 under which Plaintiff purchased $11,175 of Defendant's future receivables for $7,500.

$5,798.40 510519 Kings County, NY

EBF Partners, LLC

Cannon Oil & Gas LLC; Carlos Chavez

MCA - Receivables

05/24/17 Vadim Serebro

Enforcement of a Confession of Judgment from Defendant(s) arising from alleged default of an October 2016 Secured Merchant Agreement in which Plaintiff purchased $69,500 in future accounts receivable for $50,000.

$42,692.78 604766 Nassau County, NY




PLAINTIFF DEFENDANTTYPE OF LITIGATION

DATE FILED

ATTORNEY FOR PLAINTIFF SUMMARY

DISPUTED AMOUNT

($) CASE # VENUEIbis Capital Group, LLC d/b/a NuGrowth Capital

Options Overhead Door Co. LLC d/b/a Options Enterprise; James Kopsi

MCA - Receivables

05/23/17 Stein & Stein Plaintiff alleges default of March 2016 Merchant Agreement in which Plaintiff purchased $24,975 in future receivables for $18,500 to be paid through automatic withdrawals of 10% of Defendant's deposited sales from a designated bank account

$11,458.00 32296 Rockland County, NY

Change Capital Partners Fund I LLC

Volt Electrical Systems, LLC; Paul Boudreaux Jr.

MCA - Receivables

05/22/17 Elliott Greenleaf

Plaintiff alleges breach of contract and default of an October 2016 Merchant Receivables and Security Agreement between Defendant and Azadian Group LLC, rights to which Plaintiff has been assigned and under which Azadian purchased $472,500 in future receivables for $350,000

$246,301.00 N17C-05-290 RRC

Delaware Superior

Strategic Funding Source, Inc.

J.J.G., Inc. d/b/a Marias Pizza & Pasta; Brenedick Rivera

MCA - Credit Card Receivables

5/19/17 Jennifer Ballard

Plaintiff alleges default and breach of contract under a May 2016 receivables purchase agreement in which Plaintiff purchased $95,900 in future credit card receipts for $70,000 and which stipulated payment to Plaintiff of 18% of daily batch amounts and use of a single specific third-party credit card processor, conditions which Defendant has allegedly breached.

$74,703.71 652729 New York County, NY

Last Chance Funding, Inc.

I & A Automotive LLC; Isiah Thomas

MCA - Receivables

05/19/17 Tara N. Pomparelli

Enforcement of a Confession of Judgment and personal guarantee from Defendant(s) arising from alleged default of an April 2017 Merchant Agreement in which Plaintiff purchased $20,860 in future accounts receivable for $14,000

$20,860.00 604629 Nassau County, NY

Rapid Capital Finance LLC

Carlyle of Lawrence, LLC; Steven Carl

MCA - Receivables

05/19/17 Dennis Pons Plaintiff alleges default of a December 2016 agreement under which Plaintiff agreed to purchase, for an undisclosed sum, all rights to Defendant's receivables having an agreed upon value of $211,200.

$132,195.00 604541 Nassau County, NY

Itria Ventures LLC

Fresh Brands LLC, Gateway Fresh LLC, Malik Asif, et al

MCA - Receivables

05/18/17 Jonathan Gitlin

Entry of Judgment against Defendant(s) stemming from the alleged default of a March 2017 Future Receivable Sales Agreement in which Plaintiff

$340,291.68 706927 Queens County, NY




Continued from front page

‘Synthetic’

nate fraud as a default if they are unable to establish contact with the business borrower, according to Cook.

Because 90% of small businesses have less than 20 employees, according to 2012 U.S. Census Bureau data, and are fairly volatile, with thin data footprints, “that works very well for a fraudster,” Cook added.

Johnny Ayers, the co-founder of Socure, a know-your-customer identity verification tool for financial institutions, said that most small business loan fraud occurs in one of two ways. In the first case, thieves steal data from a business owner and apply for credit in their name. As for the second scenario, the crime will entail an employee of the business misrepresent-ing their beneficial owner-ship of an entity to obtain funds.

“It could be an external individual – a vendor or a supplier of the business – but it could also be a rogue employee, who has sufficient information to pre-tend to be the owner of the business,” he said.

Ayers could not attest to the scope of the malicious insider threat aspect of SME loan fraud, but said that with the loss exposure, given the size of these loans, ranging from $10,000 to $100,000, “Even a single loss, is mas-sive.”

“For an institution that’s making their money on interest, five percent interest on a ten-thousand-dollar loan, their upside is five-hundred bucks and their downside ten thousand. And so to make up for that one loss, they have to make a lot of loans,” he added.

Legacy Banks at a Disadvantage

According to Ayers, who counts three of the biggest fintech SME lenders as

clients, small business risk exposure disrupts the underwriting process and forces lenders to conduct more manual reviews. The problem is that manual reviews are more labor-intensive, cost-lier and less scalable risk management systems.

However, rushing to automate can prove hazardous for legacy firms hur-rying to keep pace with nimbler fintech innovators that can approve smartphone loans in under 10 minutes. The problem is that the core legacy technologies being

used by most banks are at least two-decades old according to Jim Heinzman, Executive VP of Financial Services Solu-tions at ThetaRay – an Israeli cybersecu-rity firm.

So for a local bank, credit union or other legacy lender that’s rushing to market with an automated insta-loan solution, it may be difficult to code the correct rules and parameters around dis-sipated, disorganized and unsecure data-bases.

Heinzman pointed to one case, where hackers uncovered a glitch in a third-party processor that approved loan applications when the process timed out. Meanwhile, Cook highlighted the cata-combs of the Dark Web, where cyber-criminals trade technical documents that reveal vulnerabilities of older bank com-pliance technologies.

But when is loan fraud most prevent-able? While Heinzman stressed that fraud is best intercepted right before

the point of execution (of a fraudu-lent transaction), Ayers emphasized the importance of the front-end, and rooting out adverse selection at the customer- onboarding stage.

Ayers added that by concentrating risk screening parameters around the riskiest 5% of the borrower population, Socure is able to capture 75-to-80% of all uncaught fraud.

Shifting back to Cook and XOR, his team mined some data for The Alternative Lending Report that illumi-

nated the opaque mar-ket economy of SME loan fraud. XOR found that 40% of all small business loan f raud originated in just four states: New York, Texas, California and Florida. “This correlates with state populations both in terms of people and the business account applications we evalu-ated,” said a company

representative.Population density may also explain

why XOR found New York’s business fraud rate to be twice the national aver-age. Additionally, XOR said the rise of organized cybercrime syndicates is enhancing f raud sophistication and making theft more difficult to detect.

In fact, Richard Parry, a consultant and former security executive at JPM-organ Chase, Citigroup, and Visa, told American Banker that the average SIF ring has hundreds and sometimes thou-sands of fake IDs simultaneously syph-oning funds from institutions.

While there are no official estimates about the extent to which organized cyberfraud rings impact bank losses, in 2013, authorities exposed a New Jersey syndicate that created 7,000 fake IDs to obtain more than 25,000 credit cards, facilitating the theft of over $200 mil-lion.

“For an institution that’s making their money on interest, five percent interest on a ten-thousand-dollar loan, their upside is five-hundred bucks and their downside ten thousand. And so to make up for that one loss, they have to make a lot of loans.”

Johnny Ayers, Socure



ALTERNATIVE LENDING REPORTTHE MCA Lawsuits

Continued from front page

MCA companies who prevail in these disputes. As always, the devil hides in the details and those details are in the con-tract. To compete, MCA companies may try to simplify and shorten their con-tracts, since a customer could be consid-ered more likely to take a cash advance with a four-page contract, as opposed to a 10-page contract from a competi-tor. But in simplifying and shortening the details of the deal, MCA companies could be opening themselves up to liabil-ity, attorneys say.

In one New York case last month, Merchant Funding Services won its MCA lawsuit merely by asking the judge to read the actual contract. The company and defense attorney Amos Weinberg are adversaries in half a dozen New York law-suits involving MCA agreements. Wein-berg was undone in the most recent suit by orally describing contract terms to the court when the actual written language described terms that were quite different – much to the judge’s annoyance.

Estimated 300 Active MCA Disputes Nationwide

As of May 30, there are nearly 300 active MCA contract disputes in U.S. courts throughout the country. In now-closed cases, MCA companies appeared to fare better under the rulings of fed-eral judges who follow a test: that a pur-chase of credit card receipts is not a loan because the purchased receipts under most MCA contracts are not payable absolutely. The key is the reconciliation clause in many MCA contracts, which allow merchants to adjust their daily ACH payments to correspond with their actual sales. Because repayment is con-tingent on the volume of sales receipts, that contractual language is a critical component in lawsuits where the judge ruled in favor of the MCA company, court filings show.

Colonial Funding Network’s recent court victory is a prime example of this legal principle at work. On May 9, Colo-nial, as the servicing provider for TVT

Capital, won its federal case in New York against Epazz, Cynergy Corporation, and Shaun Passley after the judge ruled that Epazz and Cynergy sold receipts in exchange for a cash advance, which could not be legally considered a loan.

In ruling for Colonial, U.S. District Judge Louis Stanton wrote, “Defendants’ argument that the actual daily pay-ments ensure that TVT will be paid the full receipts purchased amounts within approximately 61 to 180 business days … is contradicted by the reconciliation pro-visions which provide if the daily pay-ments are greater than 15% of Epazz’s daily receipts, TVT must credit the dif-ference to Epazz, thus limiting Epazz’s obligation to 15% of daily receipts. No allegation is made that TVT ever denied Epazz’s request to reconcile the daily payments. TVT’s right to collect the receipts purchased amounts from Epazz is in fact contingent on Epazz’s contin-ued collection of receipts. …None of the defendants’ arguments … change the fact that whether the receipts pur-chased amounts will be paid in full, or when they will be paid, cannot be known because payment is contingent on Epazz generating sufficient receipts from its customers; and Epazz, rather than TVT, controls whether daily payments will be reconciled.”

The judge also rejected defendants’ claims that they were victims of a RICO conspiracy. (You can read the judge’s full ruling for Colonial Funding Network here.)

A review of recent cases decided in favor of MCA companies shows again and again that if the contract lets mer-chants lower their repayments if their sales fall, then the transaction cannot be considered an absolute repayment and therefore by legal definition is neither a loan nor can it be considered usurious.

Historically, a majority of these law-suits have come out of California. One of the largest and longest is Richard B. Clark, et al. v. AdvanceMe, under which AdvanceMe – without admitting to any

MERCHANT CASH ADVANCE FUNDERS BY STATE

STATE # OF MCA FUNDERS

New York 96

Florida 51

California 35

New Jersey 13

Pennsylvania 9

Connecticut 7

Texas 6

Massachusetts 5

Michigan 5

Colorado 4

Illinois 4

Nevada 4

Virginia 4

Georgia 3

Maryland 3

Ohio 3

Oregon 3

Arizona 2

Delaware 2

Indiana 2

North Carolina 2

Washington 2

Arkansas 1

Hawaii 1

Kansas 1

Missouri 1

Mississippi 1

New Hampshire 1

South Carolina 1

Utah 1

Source: SmallBusinessLending.io Directory

https://s3.amazonaws.com/static.smallbusinesslending.io/source-docs/Colonial-v-Epazz.pdf






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MCA Lawsuits

wrongdoing – agreed to a $23.4 million settlement and forfeited the right to pur-sue further payments from the plaintiff merchants. The central argument against AdvanceMe was that the company’s cash advances were “loans in disguise” and the judge ultimately agreed. That case dragged on more than four years. At the end of the day, what began as a $73,000 dispute over an MCA made to a barbe-cue restaurant eventually blossomed into a class action suit in which AdvanceMe was also ordered to pay $4 million in plaintiffs’ legal fees.

The game has gotten so aggressive that some law firms openly solicit for clients fighting MCA companies. For instance, the law firm of Simon Gold-berg in New York has a web page spe-cifically targeting merchants who face lawsuits from Bizfi, also known as Mer-chant Cash and Capital LLC. Howev-

er, as a plaintiff, the majority of Bizfi’s active cases involve bankruptcy filings by merchants who received cash advances – not contract disputes – according to court filings.

Any Regulation Likely on State Level

With lawsuits still popping up like wild mushrooms, some in the indus-try wonder if government regulation is inevitable, an effort to curb the mount-ing number of court cases.

“Any regulation of the merchant cash advance industry more likely will come at the state level,” Maryland law firm Hudson Cook said in a statement. “However, given the lack of alternative funding sources for small businesses, we do not anticipate a rush to limit the availability of merchant cash advance transactions. At most, we would expect

one or more states to impose some limits on the terms of merchant cash transac-tions, including perhaps, limits on dis-count rates. However, we know of no state legislative efforts in this area at the moment.”

States impose heart-stopping penal-ties on businesses that offer commercial loans without a lender license or charge interest rates judged to be usurious. To guard against these problems, MCA lawyers urge their clients to structure every cash advance transaction as a sale, not a loan.

The contract language is critical. Court rulings against several MCA companies in New York show the MCA company tripped up by using the word “loan” in contracts, even in depositions preceding trial. In some cases it appears that was all it took for the court to rule against the MCA operation.

http://www.goldenbergfirm.com/Debt-Collectors-List/Merchant-Cash-and-Capital-LLC.aspx

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