Why a Kabbage Inc. IPO Would be a Terrible Idea

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Kabbage Inc. Should Stay Private

Considering the cool reception tech unicorns have experienced with their initial public offerings (Uber, Lyft, WeWork, etc.) we pen this cautionary note for companies looking to IPO today. While easy monetary policy has allowed many private company valuations to swell out of control, the window of opportunity to go public may be closing.

Most ventures seek public funding either to raise capital or for the liquidity it provides early investors and employees. To date, they’ve done an excellent job of tapping the debt capital markets to raise funds for loan originations which they ultimately selloff large amounts of loans to institutional investors.

But this strategy relies on both an easy credit market and institutional investor appetite for securitized products. Near the end of a business cycle, this becomes less certain.

So that leaves us with the liquidity necessity. One alternative to the traditional IPO is a direct listing onto an exchange, the recent preference for workplace software provider Slack.

We have written extensively about Kabbage Inc., the small business lending fintech based in Atlanta, Georgia (see how they scored on our Kabbage reviews page). Kabbage arranges small business financing, through partnerships with banks and other financial institutions.

As of now, it doesn’t appear that Kabbage loans is actively pursuing an IPO, although they have reportedly mulled the decision in the past.1 We think this idea should remain an afterthought as they continue to scale.

Our skepticism of going public at this stage was empowered after looking at how other players in the online lending space (Lending Club, Ondeck Capital, and Lending Tree) have performed sine their initial public offerings. Keep in mind, these performances were during a strong overall stock market.

How Other Online Lending Shares Have Performed

Lending Club Slump Continues

One name we haven’t talked about much on this site is Lending Club, the online peer-to-peer lender based in San Francisco, California. Since the company doesn’t provide small business funding, LC has largely eluded our radar.

From their website, Lending Club’s personal loans are mostly unsecured, meaning you won’t need a co-signor or have to put your home up for collateral. Of course, this means a higher interest rate, which is bad for borrowers but good for the investor buying the debt. But while they primarily service individual consumers and institutional investors, it is educational to follow how the fintech performs.

The performance of LC stock has been rough, to say the least. Since their December 2014 initial public offering, when shares opened for trading at $123.75, Lending Club shares are down roughly 90% to a price of y (as of October 20, 2019).2

Now it’s also true that Lending Club shares had another contributing factor to their slump, a scandal, costing founder Renaud Laplanche his position as CEO. The problem essentially revolved around $22.3 million worth of loans sold off to investment bank Jeffries, with some [alleged] doctored loan documentation designed to fit the buyers criteria.3

Ondeck Capital Stock Price Slide

The shares of Ondeck have likewise been struggling since their initial public offering back in December of 2014. At the time, Ondeck shares opened for trading at $26.50. Since then, shareholders have endured a slide of approximately 86%, to current price levels around $3.60 (as of October 20, 2019).4 Part of the slump is a result of reported slowdown in revenue growth, as reported by Bloomberg.5 But considering the overall equity markets have been strong, this relative weakness portends further weakness when the next bear market comes.

With an endorsement by Shark Tank veteran and real estate mogul Barbara Corcoran, Ondeck was apparently courting newer, startup ventures. But now Ondeck appears to be in a bit of an identity crisis. We are rooting for Ondeck, and their same-day loan program provides badly needed net working capital to thousands of small businesses.

Lending Tree Bucks the Trend

One bright spot (REALLY bright) is North Carolina’s Lending Tree, the country’s largest online lending marketplace. From their website, lendingtree.com, consumers can shop for auto loans, mortgages, credit cards, insurance and personal loans.

Shares of Lending Tree (symbol: TREE) have certainly bucked the trend, rocketing some x% since their IPO back in y.6 Similar to Lendio, Biz2Credit or Fundera, Lending Tree is an online marketplace where borrowers can search for the right credit option to meet their needs. Through partnerships, Lending Tree offers just about any type of funding you can think of, including asset based lending options and invoice factoring. LT has interests in a number of websites, contributing to its scale. These include:

·       Value Penguin

·       Quote Wizard

·       Simple Tuition

·       Deposit Accounts

·       Compare Cards

·       Snap Cap

·       Magnify Money

While primarily a consumer service, they do offer business loans as well, servicing sole proprietors, LLCs, partnerships, C-Corps and S-Corps. Lending Tree assists business borrowers at every stage of their lifecycle, including startup funding. Prospects enter their business’ structure and related information and in minutes, likely get matched with an appropriate lender, assuming minimum requirements are met.

There were three prominent lenders displayed on Lending Tree’s website (National Funding, Kabbage and Ondeck) which presumably provided much of funding. These loans from these names may be made by behind-the-scenes-banks as well.

Bigger Seems Better

As you can see, scale seems to be a trend that should continue. The future of the online lending could be controlled by a number of e-commerce and payment heavyweights. We’re referring to names like Amazon lending, Alibaba small business, Square Capital, Paypal Working Capital (specifically, their Loanbuilder product). We also recently saw that another payment unicorn, Stripe, has decided to extend credit with its Stripe Capital.

More information on names mentioned in this article:

·       National Funding reviews

·       Can Capital

·       Lendio Reviews

·       Ondeck Reviews

·       Swift Capital

·       Bluevine reviews

·       Loan Me reviews

·       Fundera reviews

·       Prosper loans

 

 

1https://www.bizjournals.com/atlanta/news/2017/08/03/atlanta-unicorn-kabbage-raises-250-million-from.html

2https://www.marketwatch.com/investing/stock/lc

3https://www.inc.com/business-insider/inside-lending-club-scandal.html

4https://www.marketwatch.com/investing/stock/ondk

5https://www.bloomberg.com/news/articles/2019-02-21/online-lenders-shares-hurt-by-expected-revenue-growth-slowdown

 

 

 

 

Why isn’t Kabbage a Household Name?

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Why isn’t Kabbage a Household Name?

Lending Tree, Quicken Loans, Rapid Advance…Kabbage?

Despite facilitating over $6 billion in loans to over 200,000 small businesses, Kabbage remains widely unknown as a household name. But with a recent marketing blitz, that won’t be the case much longer.

Last month, we received our first advertising mailer from Kabbage (see attached image). The message highlighted their line of credit (up to $250,000 for qualifying businesses) and the requirements for qualifying. Kabbage loans require you to have been in business for one year and have $50,000 in annual revenues (or $4,200 in monthly revenues for the prior three months) prior to funding. This isn’t too hefty a barrier, especially when compared with the median annual gross revenue of $280,000 for small businesses (according to Kabbage’s Small Business Revenue Index).1

The money, accessible 24 hours a day, can be used to purchase inventory for a big order, hire key employees or meet payroll. They can actually approve you for $200,000 within minutes of your online application.

Interestingly, the flyer was sent to our home but was addressed to a former retail business we ran in the mid-to late 2000s. At that time, small business financing was still very much controlled by local and community banks. Even the earliest fintechs (National Funding, Fundbox, Ondeck Capital, etc.) were unknown to most business owners. Access to net working capital would’ve certainly helped our specialty retail business but alternative funding sources like asset based lending was largely for those “in the know”. Fast forward to today and the small business climate is much different.

But Kabbage isn’t just using mailers-they began a national media campaign in October of this year on both radio and television. We first head them in early October on Fox Sports Radio’s The Colin Cowherd Show.

Demonstrating how quickly they’re growing, the September mailer quoted 170,000+ small businesses served while an October 8th, 2019 ad on Fox Radio’s The Colin Cowherd show revealed that number had already reached 200,000. Cowherd was quick to emphasize that $250,000 can go a long way when starting a new business. This is a nod to entrepreneurs seeking elusive startup funding.

Another nice thing about the Kabbage line of credit is that you don’t have to use ALL of the funds (pay for only what you use). This might be prudent for the newest businesses. The economy is probably late-cycle, so when the economy cools off there may be many small businesses without the ability to repay debt.

 Interestingly, Kabbage seems to be targeting a much different audience with Fox Sport’s the Cowherd Show. Other lenders or marketplaces like Bluevine Capital, Newtek, Nerdwallet, Smallbizloans and Upstart loans (check out our Upstart reviews) focus more on financial news networks like CNBC and Bloomberg. In particular, the smallbizloans campaign should give Lendio, Biz2Credit and Fundera (see our Fundera reviews page) something to think about.

Maybe it’s because Cowherd takes a somewhat more sophisticated, analytic angle than other sports talk shows. Regardless, 18-35 year-old sports fans might not have the best credit. Or, they could have excellent credit but are maxed out with student loan debt amid the tuition bubble. In other words, those ads are aimed more at the younger entrepreneur.

Some Things to Understand with Kabbage Lines of Credit

But remember, when you replenish any part of the line, it is treated as a separate installment loan. And for security purposes, Kabbage may also send micro-deposits prior to funding, to protect against fraud. This can delay the process and can take “several days” to fully fund.

Another knock on many online small business loans, is the high interest rates that are charged, especially when annualized, given such a low rate environment. Kabbage and other fintech lenders use Utah-based or New Jersey banks, where there’s a higher cap (or none) on usury [loan] rates. Fair or not, some accuse certain fintechs of “rent a bank” schemes to bypass state consumer finance laws.2

Our take is that fintech borrowing rates are still cheaper than many cash advance companies (and even some invoice factoring companies out there-check out our Kabbage reviews page to dig deeper into the costs and see how we scored them). There has to be some premium charged by lenders to compensate for the risk of startup funding or there would be no access to capital whatsoever.

We think the sky’s the limit for online lender Kabbage. But we hope they decide to stay a private company, relying on debt and venture financing for funding. There has been talk of the company pursuing an IPO (initial public offering) presumably for capital as well as notoriety.3 We think this would actually hamstring their innovation and make them more susceptible to outside influences.

More information on Kabbage competitors can be found below:

•                       National Business Capital reviews

•                       Fundbox reviews

•                       Lendio reviews

•                       Can Capital

•                       Bluevine reviews

•                       Strategic Funding

•                       Ondeck reviews

•                       Fora Financial

•                       Swift Capital

•                       Rapid Advance reviews

•                       Loan Me

 

1https://www.inc.com/nick-devlin/us-small-business-revenue-kabbage-small-business-revenue-index.html

2https://www.cov.com/-/media/files/corporate/publications/2018/10/fintech-charter-interest-could-be-shaped-by-litigation.pdf

3https://www.sramanamitra.com/2017/12/06/billion-dollar-unicorns-kabbage-mulling-over-an-ipo/

 

The Real Reason Rapid Advance Became Rapid Finance

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Rapid Advance has Become Rapid Finance

In case you haven’t heard, small business funder Rapid Advance is now officially Rapid Finance. That means their catchy commercials (‘Rapid Advance, they didn’t say no…’) will have to be scrapped or cleverly dubbed over. You may be wondering, why the name change in the first place?

What’s in a Name?

The rebranding is actually an upgrade for the Bethesda-based online lender. In fact, we recently raised our score for Rapid Finance (see Rapid Advance reviews) to reflect the likely reputational tailwind.

Specifically, negative connotations surrounding the term “advance” was a major reason for the change. Now there’s nothing wrong with most MCA or merchant cash advance companies (outside of annual percentage rates as high as 384%)1. But the backlash surrounding the Confessions of Judgement abuses in New York have caused several alt-fi companies to walk back their ‘cash advance’ marketing.2

In addition to the predatory lending stigma created by a few bad apples, more established small businesses are less likely to shop for more stringent (and cheaper) financing like SBA loans at a company with “advance” in the name.

Rapid Finance joins similar funders like Can Capital, Fora Financial and Swift Capital who have undergone brand improvements.

Rapid Finance Spotlight

·       Headquarters: Bethesda, Maryland

·       In Business Since: 2005

·       Funding Category: Online lender

·       Total Amount Funded: $1 billion+

·       Primary Financing Method: Direct Lending

·       Popular Offer: Term loans.

Rapid Advance (now Rapid Finance) was founded in 2005 and has reportedly funded over $1 billion for thousands of small businesses. The company’s background comes from the business capital advance industry and many of their customers might not qualify for traditional bank loans. Today, Rapid Finance has a wide range of funding options for customers including restaurants, salons, cleaning services, auto shops, diners and liquor stores.

Their financing options Include:

·       Small Business Loans

·       Merchant Cash Advances

·       Bridge Loans

·       Business Lines of Credit

·       Factoring

·       Asset Based Loans

·       Commercial Real Estate

·       SBA Loans

·       Healthcare Cash Advances

Given the wide array of small business funding options, we expected Rapid Finance to have morphed into more of a marketplace lender like Fundera or Lendio. For example, it’s unusual to see business cash advances, SBA loans and invoice factoring all from one company.

But we spoke with Nick in the Detroit, Michigan office who offered that about 85% of their funding is now direct loans. It’s obvious that the name change has not negatively affected the lender’s capabilities in any way.

That leaves just 15% to be referred out to various lenders. Unfortunately, Rapid Finance does not reveal their lending partners until a customer is rather far along in the application process. This is similar to Biz2Credit, who also does not disclose their partners.

We suspect their partner list is actually quite high, considering they actively solicit partner applications from finance brokers, asset based lending companies, credit card processers, equipment leasing shops and factoring companies right on their site.

How is Rapid Finance Different from Other Alternative Lenders?

Unlike most alt-fi companies, Rapid Advance offers healthcare cash advances, known as HCAs. They provide businesses in the healthcare space immediate net working capital against a percentage of future insurance receivables. This transaction is somewhat similar to medical factoring, in that healthcare companies are fronted business capital as an alternative to waiting for future reimbursements. A Rapid Finance HCA can advance $5,000 to $500,000. And there are no fixed daily or weekly repayments as with some advances.

HCA customers must provide the following documentation:

1.       Voided check from a business checking account.

2.       Government-issued photo ID, like a driver’s license.

3.       Last three statements from your small business bank account.

Another difference is that Rapid Finance does not offer invoice finance options themselves. While they likely utilize names we like including Fundbox or Bluevine, we would prefer they provide the service themselves. This way a stronger relationship between the small business and financing company can be fostered.

A factoring company provides upfront funding, the advance, for B2B companies who typically wait weeks or months for customers to remit credit payments. Major names include OTR Capital, Riviera Finance and FleetOne.

Then there are the fintechs such as Ondeck Capital, Lending Club and Kabbage loans (see Kabbage reviews) that provide online small business loans. But unlike these funding options, MCAs, HCAs and accounts receivable factoring doesn’t incur additional debt for the small business.

Calculating Rapid Advance’s Rebranding

In addition to the Rapid Finance commentary above, we reiterate the change’s pros and cons:

Main Pros:

·       Could attract a higher quality customer base.

·       Smart risk management play.

·       Still able to offer MCA and HCA products.

·       Reputational boost.

 

Main Cons

·       Potential marketing costs increases.

·       Apparently, no more song-and-dance commercials

 

Other lenders like Rapid Finance:

·       National Funding

·       Strategic Funding

·       National Business Capital

·       Rocket Loans

·       Balboa Capital

·       Lendfi

·       Kapitus

·       Reliant Funding

·       Jet Capital

·       Credibly

·       Smart Business Funding

·       BFS Capital

·       Lendini

·       SOS Capital

 

1https://money.cnn.com/2016/12/01/news/economy/merchant-cash-advance/index.html

2https://www.bloomberg.com/news/articles/2019-01-14/predatory-lending-tactic-curbed-by-three-new-york-county-clerks

 

 

Who’ll Survive Fintech’s Battle Royale- Lendio, Fundera or Biz2Credit?

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Lendio vs. Fundera and Biz2Credit

It’s been a while since we posted our scores for these fintechs (see our Lendio reviews, Fundera reviews and Biz2Credit reviews). For 2019, we checked in on them to see how they’re doing and look at their similarities and differences.

Lendio Spotlight

·       Headquarters: South Jordan, Utah

·       In Business Since: 2011

·       Funding time: As soon as 24 hours after approval.

·       Primary Financing Methods: Term Loans, Lines of Credit, SBA Loans

Lendio is an online marketplace where potential business borrowers come to shop for loans. Lendio acts as a middleman, not a direct lender, connecting borrowers and lenders on their platform. According to reports, they’ve helped small businesses receive over $1.4 billion in small business funding.

Lendio provides a wide array of business financing options, including:

·       Accounts receivable factoring

·       Business line of credit

·       Small Business Credit Cards

·       Working Capital Business Loans

·       Merchant Cash Advances

·       Equipment Financing

·       SBA loans

·       Startup Loans

·       Commercial Mortgages

·       Business Acquisition Loans

·       Business Auto Loans (through Bank of America)

As you can see, that’s quite a lineup of loan products. To achieve such a broad scope, Lendio has established partnerships with a wide variety of lenders providing everything from peer-to-peer loans and commercial mortgages to asset based lending and receivables factoring.

For factoring, Lendio features two of the largest fintech players in the invoice finance space, Bluevine and Fundbox. Both provide accounts receivable financing for B2B customers that are invoice rich but cash poor.

And if you have mediocre credit, that’s OK. With factoring, it’s not the credit quality of the borrower that matters. Rather, it’s the creditworthiness of the invoiced customers, known as account debtors. As such, some consider them bad credit business loans. 

Keep in mind, Bluevine offers actual small business factoring whereas Fundbox extends lines of credit determined as a percentage of the invoices’ face value, age and credit quality. Factoring receivables involves the actual purchase of the invoice from the customer (factoring companies like Amerifactors or Riviera Finance are prime examples). There are also niche trucking factoring companies like OTR Capital and Fleetone that focus on the transportation clientele.

Lendio also features a number of small business cards from major names like Bank of America, Capital One, Amazon lending and American Express. Some of the same names we’ve covered in our business credit cards section such as the Bank America Business Advantage and Delta SkyMiles card. American Express also offers their merchant financing program if your business accepts their credit cards.

Lendio funding partners include:

·       Bluevine Capital

·       Ondeck Capital

·       Fundbox

·       Kabbage loans

·       Strategic Funding

·       Funding Circle

·       PayPal (Swift Capital)

·       Lending Club

·       Internex Capital

·       Fundation

·       Breakout Capital

·       Credibility Capital

·       Seek Capital

·       Provider Web Capital

·       Headway Capital

·       Xendoo

·       Profit Stars

·       Action Capital

·       Local banks (for franchisees)

In addition to their online platform, their marketplace moved into the local space via franchising. Lendio began franchising in 2016 and now has over two dozen franchisees. Lendio ranks #288 on Entrepreneur’s ‘best franchises’ list.1

Current Lendio franchise locations include:

·       North Carolina (Charlotte, 2019)

·       Pennsylvania (Erie)

·       Texas (Plano and Frisco)

·       Washington (Spokane)

·       New England (Vermont, New Hampshire, Maine)

A Lendio franchise may be a great option for veterans, who receive a 10% discount on the franchise fee (roughly a $2100-$3500 value)2. We applaud this program and is why we include it in our loans for veterans section.

Fundera Spotlight

·       Headquarters: New York, NY

·       In Business Since:3 2013

·       Amount funded: Over $1 billion

·       Known for: Small business loans, lines of credit.

Fundera is another online lending marketplace. At fundera.com, business borrowers fill out a quick application and discover what type of loan they qualify for and approximate interest rates. The process takes just a few minutes utilizing the site’s digital technology.

What Type of Business Funding does Fundera Arrange?

Fundera’s Lending Options Include:

·       Business Loans

·       Term Loans

·       SBA loans

·       Startup loans

·       Lines of Credit

·       Small business credit cards

·       Factoring financing

·       Equipment Financing

·       Personal loans

Since their founding, Fundera has handled over $1 billion in small business lending. Their bread and butter are small business loans. Luckily for those with less than perfect credit, Fundera actively brokers invoice financing and invoice factoring companies (yes, they are different).

Fundera Partners Include:

·       Kabbage

·       Bluevine

·       Fundbox

·       Funding Circle

·       PayPal

·       Ondeck

·       Headway Capital

·       QuarterSpot

·       Live Oak Bank

·       Credibility Capital

·       Celtic Bank

·       Chase

·       Lendistry

·       Capital One

·       Fundation

Since both Lendio and Fundera match borrowers with several of the same lenders (Kabbage, Ondeck and Paypal, Funding Circle, Bluevine and Fundbox) it makes sense to check out our rankings first. They can be found on our invoice factoring company reviews page or individually at:

·       Kabbage reviews

·       Ondeck reviews

·       Bluevine reviews

·       Fundbox reviews

·       Swift Capital reviews

·       Funding Circle reviews

Lendio versus Fundera

While they share many similarities, there are some differences. Despite both being online marketplaces, Lendio has a more local footprint, receiving overflow that doesn’t match local bank standards.  

As you can see, Fundera has significantly fewer funding partners than Lendio. This isn’t necessarily good or bad. One could argue that less lenders means price competition for the borrower. Conversely, the scale from concentrated capital sources may contain better customer pricing.

Further, Fundera matches borrowers with personal loans for business which Lendio doesn’t, while business auto loans are more utilized by Lendio’s customers.

If you’re somewhat skeptical of online small business loans and need a more local connection you might consider Lendio because of their franchises. Lendio is also headquartered in lending-friendly Utah, so there may be less red tape involved with the funding processes.

Lendio seems to have more clout when it comes to procuring business auto loans so if you’re in the market for a work vehicle, Lendio may be a great option.

However, if you know you’re looking for personal loans for business, Fundera can match you with a lender (be sure and check our review pages first, Discover personal loans reviews, upstart reviews, prosper loan reviews, etc.).

Finally, if you are a relatively new small business, the educational resources on Fundera (guides, calculators, etc.) are fantastic so maybe start your journey there. They offer non-funding information on everything from small business insurance and marketing to credit card processing and software systems.

Biz2Credit Spotlight

·       Headquarters: New York City, New York

·       In Business Since: 2007

·       Amount Funded: Over $2 billion

·       Known for: Small business loans, loans for minorities and professional services

The last of the challengers in our online lending marketplace battle is Biz2Credit of New York. One of the earliest fintechs, Biz2Credit began operations back in 2007. Today, the New York City fintech has arranged loans for over 100,000 small businesses, totaling over $2 billion.

Biz 2 Credit Arranges the Following Types of Loans:

·       Small Business Loans

·       Equipment Financing

·       Business Credit Cards

·       Merchant Cash Advances

·       Lines of Credit

·       SBA loans

·       Business Acquisition Loans

·       Commercial Real Estate Financing

Biz2Credit does offer various loan options including the usual products-unsecured loans, lines of credit, MCAs, business credit cards, etc. Further, they do a thorough job of demonstrating how funding for a wide range of businesses-from gas stations and motels to doctor loans and CPAs, can improve their operations.

Biz2Credit also doesn’t provide personal loans, per say. A bit of semantics, but they do offer financing to professionals (CPAs, dentists, attorneys, etc.) looking to start their own shop. These startup loans are similar to personal loans in that personal credit checks are performed and collateral (or a substantial personal investment) may be required. Some of the loans Biz2Credit mentions are CDC

Further, they do not offer any invoice finance options, which is unfortunate. Many small and seasonal businesses need the bridge financing that AR financing can provide.

Biz2Credit also doesn’t disclose their lending partners on their, in contrast to Lendio and Fundera. They only mention their large network of large and community banks, alternative funders, institutional investors, credit unions, CDFIs, etc.

And by looking through a variety of articles and publications, you can see that Biz2Credit has arrangements with HSBC, Popular Bank and India’s Tata Capital (in addition to significant VC investors)4. Nevertheless, with a total volume of over $2 billion in funding, Biz2Credit must have strong partnership relationships, well beyond HSBC and Banco Popular.

Not listing their lending partners isn’t necessarily a bad thing, but we’d prefer to see who they vet and trust with. This could help prospective borrowers make a decision of which marketplace to utilize. Of course, before signing any lending agreements, there will be appropriate disclosure of the lenders.

Fundera, Biz2Credit and Lendio: Under the Microscope

Main Similarities

·       All are online marketplace lenders (essentially brokers) matching borrowers with lenders.

·       Each uses financial technology to improve the process.

·       Venture capital backed.

·       None are direct lenders.

·       All rely heavily on SEO to attract prospects.

 Main Differences

·       Only Lendio has a real local market presence through franchising.

·       Biz2Credit does not provide factoring financing.

·       Only Fundera extends personal loans.

·       Origination fees paid to Biz2Credit for arranged loans.

The Judge’s Decision

As per our reviews, we formerly had Lendio edging out Fundera and Biz2Credit by a nose (92 to 91 and 91 respectively). After further review, we are upgrading Fundera to 92, matching Lendio. They recently signed a long-term lease agreement for their Manhattan office, demonstrating their future ambitions.5

Despite being the oldest of the three, and financing the most lending volume, Biz2Credit will remain slightly behind the other marketplaces for now. While we really like the technology Biz2Credit brings to the table (like their BizAnalyzer tool and proprietary small business index) the fact that they don’t have factoring solutions, don’t display their lending partners and charge an upfront origination fee keep them at a 91 (still an extremely high score).

All three are fast-growing, highly reputable fintechs where businesses can obtain capital and discover a wealth of information. Businesses really can’t go wrong with any of them.

Similar Companies to Lendio, Fundera and Biz2Credit:

·       National Business Capital

·       Loan Me

·       Lending Tree

·       Funding Circle

·       National Funding

·       Rocket Loans

 

1,2https://www.entrepreneur.com/franchises/lendiofranchising/335091

3https://www.crunchbase.com/organization/fundera#section-overview

4https://www.financialexpress.com/industry/tata-capital-ties-up-with-biz2credit-to-finance-smes/235518/

5https://www.prnewswire.com/news-releases/american-realty-capital-new-york-city-reits-123-william-street-property-will-be-98-leased-with-the-commencement-of-two-new-long-term-leases-with-classroom-inc-and-fundera1-300707107.html

 

 

 

Fundbox Pay versus Bluevine Capital

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Fundbox Pay vs Bluevine Capital Inc.

Here is a comparison of alternative funders, Fundbox and Bluevine. Both offer invoice finance, just in slightly different ways. Fundbox uses the outstanding invoices as collateral for a line of credit, known as invoice financing. They have also expanded with a vendor financing product, Fundbox Pay.

Bluevine puts a 21st century spin on old-fashioned invoice factoring, with faster approval and funding times than most traditional banks. After reading this comparison, be sure and check out our Fundbox reviews or Bluevine reviews pages to see how we scored each company using our proprietary metrics.

Here’s a quick summary for the Fundbox vs Bluevine discussion:

Fundbox

·       Founded: 2013

·       Funding Provided: Invoice financing, line of credit, Fundbox Pay

·       Minimum Revenues Required: ~ $50,000 annually

·       Minimum FICO score: None to apply

·       Fees: Start at 4.66% per week

·       Useful For: Many B2B companies.

·       Funding Received: As fast as next business day

Fundbox is an online lender based in California. The fintech provides invoice financing and lines of credit for small businesses. Providing funding in amounts as low as $1,000, Fundbox is ideal for smaller businesses. This is great news for startups since regular banks or credit unions aren’t overly-excited about financing such operations.

With accounts receivable financing, a revolving line of credit is created, collateralized by outstanding customer invoices. It’s a shrewd way to supplement cash flow during seasonal slowdowns and provide a buffer for net working capital.

To access the small business financing, customers need to connect through either their business checking account or small business accounting software. Luckily, Fundbox’s lending platform is compatible with major software brands including Quickbooks, Xero, Jobber, kashoo and Zoho.

Once approved for Fundbox’s Direct Draw, you can access next-day funding from the outstanding invoices. According to the Fundbox website, their weekly fees start at 4.66% and may change over time.

Fundbox Pay

One feature we love is Fundbox Pay. If you regularly invoice customers (and wait for repayment) ask them to apply for Fundbox trade credit. Fundbox provides credit directly to them, allowing your business to get paid faster and capitalize on opportunities.

It’s OK if your business has mediocre credit. After all, it is the creditworthiness of your customers that matters the most, not your business, since Fundbox will be supplying the trade credit (net terms) to them. Recall that trade credit is on our list of bad credit business loans and is a widespread method of accessing credit.

Further, if you offer ecommerce checkout, you can add Fundbox Pay as a payment option to your shopping cart at checkout. Fundbox is becoming a powerful pos system (point of sale) for small and medium B2B companies.

On the other side, your business receives near-immediate funding from invoices that may have previously taken around 60 days to monetize.

Bluevine Capital Inc.

·       Founded: 2013

·       Funding Provided: Lines of Credit, invoice factoring.

·       Minimum FICO: 530 (if factoring)

·       Annual Revenue Minimums: $100,000

·       Lending Decision: As quick as 24 hours

·       Origination Fee: $0

Bluevine has reportedly facilitated over $1.5 billion in small business lending financing since inception. They offer a variety of financing products including revolving lines of credit and term loans (Bluevine’s flex line of credit and term loans are offered through Celtic Bank of Utah). They maintain offices in California, New Jersey and Louisiana.

Arguably the more recognizable of the pair, Bluevine advertises nationally on the financial news network CNBC. One commercial featured a testimonial revealing a common small business problem-making payroll. Cash flow crunches are common in small businesses, especially those that rely on credit sales. They even displayed a special website for new users, trybluevine.com.

The ad promotes flexible small business credit lines of up to $250,000 through an application completed online and a funding decision relayed “in minutes”. Remember, credit scores are a significant factor in the decision-making algorithm of online small business loans. But if your business is structured as an llc or corporation, there will not be a hard credit pull at any point in the process.

Bluevine Capital

Unlike Fundbox, Bluevine Capital Inc. also offers accounts receivable factoring, the discounted sale of outstanding invoices to a third-party. In such a transaction, the funding comes via an asset sale, not a loan. As such, it’s an option for small business owners in the B2B space who are not interested in taking on debt.

A common complaint is the requirement by some factoring companies that customers factor all invoices during the relationship. Bluevine is a little more flexible, allowing clients to pick and choose which invoices to factor. Be sure to check our factoring company reviews to find out which other companies offer spot factoring.

Once the invoice program begins, the factoring fee is auto-deducted on a weekly basis. After 90 days, if the invoice has not been paid, you may be required to buy it back and reimburse Bluevine’s advance. This is not unusual among invoice factoring companies. 

Finally, many factoring companies communicate with the delinquent, account debtor for repayment, as a debt collection agency might. Both Bluevine and Fundbox do not, allowing you to maintain the relationship with your customer.

Fundbox vs Bluevine: Financial Backing

Being Silicon Valley darlings, it’s no surprise both companies have succeeded in attracting plenty of private capital including Khosla Ventures, Spark Capital, 83 North and Microsoft’s M12. But while both are venture capital backed, there are noticeable differences.

Bluevine CEO Eyal Lifshitz actually was a venture capitalist himself with Greylock and worked at management consulting firm McKinsey, Mr. Lifshitz has developed a solid understanding of what is needed to help businesses succeed from a strategic, and certainly financial, perspective. For example, at Greylock was an early investor iZettle, which specializes in credit card processing for small businesses.

However, Fundbox boasts a few heavyweights including former Citigroup CEO Vikram Pandit and Amazon founder Jeff Bezos. Mr. Bezos being on among the investors is interesting given that Amazon lending is really taking off. Of course, access to small business financing through Amazon is by invitation only, so that’s a noticeable difference with Fundbox.

Finally, both companies joined the Innovative Lending Platform Association, ILPA, in 2018.1 Members join the organization for many reasons including improving trust and broadening access to small business funding.

The Verdict

The financial technology of both companies make the funding process fast and easy. Fundbox offers their Fundbox Pay service which is best in class.  But while both companies provide excellent small business funding, we give the edge to Bluevine since they are a true factoring company. As site readers know, we laud the benefits of factoring receivables mostly that it incurs no additional debt. Nothing is as dangerous to a fledgling business as being overloaded with debt, especially late in an economic cycle.

Critics of factoring point to high factoring fees, then annualize the numbers to display a lofty APR. But annualizing the rate may be comparing apples to oranges. With Bluevine, business owners can pick and choose which invoices to factor. Bluevine charges weekly “interest” during the time until invoices are repaid, generally a half to one percentage point per week, but they advertise as low as 0.25% (depending on Libor). After 90 days outstanding, the small business may be required to buy back the invoices. This is not unusual among factors and it allows for lower overall rates for customers.

Companies with Similar Services to Fundbox Pay and Bluevine Capital:

·       National Funding

·       Loan Me

·       Strategic Funding

·       National Business Capital reviews

·       Kabbage reviews

·       Swift Capital Reviews

·       Can Capital

·       Biz2Credit reviews

·       OTR Capital

·       Riviera Finance

·       Fleetone

 

 

1https://www.pymnts.com/news/b2b-payments/2018/ilpa-bluevine-fundbox-alternative-lending-smb-finance/

 

Invoice Finance

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Invoice Finance Gets Freelancers Paid Faster

 

More and more professionals are discovering the joy of freelancing. For many, the ability to work remotely is the best part of the digital revolution. But while the independence is great, the happiness is often tempered by waiting for late payments from customers. An understanding of invoice finance can enable faster payments for freelancers, so they can focus on projects, not bill collecting.

Today’s alternative workforce includes contract, freelance and gig professionals. But it isn’t as alternative as it used to be. A study by Deloitte revealed that just 42% of respondents worked for organizations made up primarily of salaried workers.1

That trend isn’t likely to end anytime soon. As part of a cash management strategy, many publicly traded companies routinely delay payments to freelancers. In these instances, such contingent workers and contractors may wait up to 60 days or longer to get paid for services rendered. Here’s how freelancers can even the playing field.

Invoice Finance Equals Faster Payments

It’s no secret that freelancers are on the low end of the totem pole when it comes to payment prioritization. Invoice finance can speed up payments, allowing for more projects.

The term invoice finance broadly refers to the use of outstanding invoices as collateral to obtain funding from a third-party. This outside funding is offered by an invoice factoring company, known simply as the ‘factor’. The practice is known by different terms, such as invoice financing and accounts receivable factoring. Here’s an example of how it works.

Let’s say you operate a food manufacturing company that supplies fresh seafood for area restaurants. Your largest customer is a seafood restaurant that uses your shellfish as their most popular offering. The problem is the restaurant owes you a significant amount in back payments for the fish. And when they do pay, it’s often in 60 days.

As long as the restaurant isn’t in a dire credit condition, you can sell the outstanding invoices to a factoring company who will advance you a portion of the balance up front. They will also take care of the collection duties themselves.

In a true factoring transaction, the restaurant will now remit payments directly to the factor, since they now have the right to collect on the invoices. When the customer (also known as the account debtor) eventually pays the balance, they will reimburse you the remaining balance, minus their factoring fee or charge,

When your company finances the invoices you are receiving a loan, collateralized by the invoices (which are assets, accounts receivables). Therefore, you retain ‘ownership’ of the receivables. The factoring company simply establishes a line of credit for your business. In the industry it’s referred to as a revolving credit line or simply a “revolver”. As the account debtors pay their bills, the line is continuously replenished and available to be drawn upon further.

While there are distinctions between invoice factoring and invoice financing, there is some overlap. Factoring also has a financing component to it. It involves the interest that is charged while awaiting the account debtor’s prepayment of the bill. The interest charge is typically assessed on a weekly basis, although it doesn’t have to be.

Who Provides Invoice Finance?

It may be difficult for more traditional factors, like Riviera Finance or Amerifactors, to finance freelancers. Typically, specialty finance companies likes these provide small business funding only to B2B operations.

But, an increasing number of finance technology companies, such as Fundbox and Bluevine, that will work with freelancers. Such fintechs utilize the customer’s existing accounting software, generally Quickbooks, Xero or Freshbooks. In fact, many quick business loans come by way of accounting or payment infrastructure, like Paypal. The bottom line is that freelancers get paid significantly faster.

Don’t forget, there is a fee that is charged when the final payment is remitted by the customer and the factoring company unlocks the reserve balance to your business. While it can vary, the factoring fee is often ~2%.

Obviously, the lower the fee, the better for your business. But keep in mind that some factors might advertise this and hit you with charges and fees in other areas. Check our reviews page for more information.

If you operate in an especially high-demand, specialized area, try raising your prices slightly to offset finance charges and fees. Before you think that customers won’t stand for a price increase, realize that most routinely underprice for their services.

 Other Ways to Speed Freelance Payments

1-Use an online invoice system

We’re all human. That’s what I told myself every time I forgot to invoice a customer. When I first started freelancing financial research reports, I’d routinely forget to invoice for a few days after completing a project. This led to missing the payment cycle of my client, a Fortune 500 company, and I’d have to wait an extra two weeks to be paid. After this happened a few times, I finally started using an online system. It worked great and I recommend finding one that also sends out auto-reminders.

2- Offer Discount Terms

When you send the invoice, instead of the typical net 30 terms, consider sweetening the deal for your client. Freelancers might consider something like 2%/15, Net 30. This ‘code’ means if the clients can pay the bill within 15 days, they receive a two percent discount off the total. If not, the full, face value of the invoice is due in 30 days (like normal). This worked for me about a third of the time, mostly for smaller customers where every dollar impacts their bottom lines.

3- Send a Milestone Schedule

A milestone schedule breaks down a large project into measurable parts, with pro rate ‘sales orders’ billable at such installments.2 It works well for larger clients who already have reservations about working with freelancers. Utilizing contractors in general gives many compliance and Human Resources departments fits. Having as much documentation as possible tends to curb their inhibitions. Conversely, it’s a great idea for individual freelancers who can’t wait to be paid for long projects.

A final piece of advice for freelancers. The competition can be fierce for projects, especially when international freelancers severely undercut bidding prices (since projects are typically paid in US dollars, these freelancers still make out great when compared to cheaper local currencies). Even if you do win the project, the cut taken by the freelance platforms can be unfair, making the job much less lucrative. Going independent and securing your own projects can be a much more profitable avenue in the long run.

 

1https://www2.deloitte.com/insights/us/en/focus/human-capital-trends/2018/contingent-workforce-management.html

2https://www.ibm.com/support/knowledgecenter/en/SSKVFR_7.6.1/com.ibm.spr.doc/contractsmro/c_milestone_bill.html

 

 

 

Quick Business Loans

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Apex Capital Has Been Busy

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A Quick Update on Apex Capital

Apex Capital, also known as Apex Factoring, is a freight factoring company headquartered in Ft. Worth, Texas. A quick update is in order since the company has been quite busy since our last factoring company review was written.

Apex Capital Provides Freight Factoring Nationwide

Apex Capital provides freight factoring solutions for the transportation industry around the country, offering both recourse and non recourse factoring. Apex typically works with trucking companies, often independent, owner-operated rigs. As such, they compete with other trucking factoring companies including Fleet One Factoring, TAB Bank, OTR Capital and Riviera Finance for business.

Since 1995, Apex Capital has been factoring receivables for small and medium size fleet owners. One such client is Midnight Express, a husband and wife trucking team from Schenectady, New York (not far from Albany). Midnight Express runs a licensed and bonded freight hauling and trucking company. While it only has one single truck, the duo wants to maximize growth potential and keep their net working capital positive.

But doing so often requires additional financing. Getting a traditional bank loan would be trying for a company with a business that’s operated for just a few years (since November 2015 for Midnight Express).1 That is where an accounts receivable factoring company like Apex can provide tremendous benefit.

With invoice factoring, a business sells its outstanding invoices to a third-party, called a factoring company. The factor then typically takes care of the collections, so your business can focus on day-to-day operations.

Discounts and Benefits for Apex Capital Customers

If you decide to start factoring with Apex, they offer many discounts and savings through a variety of partnerships. Their Apex Fuel Card Program is a fuel management system that is accepted at internet truck stops in the United States and Canada including Flying J, Speedway, Roady’s, Petro and TA (the largest full-service travel center company in the United States). This fleet card is designed to keep your trucking company’s operating expenses in check. There is also a discounted Federal Express and tire savings program.

Start Your Own Trucking Company through Apex Capital

If you have that independent streak and want to be in business for yourself, you should consider partnering with Apex Factoring. Specifically, if you’ve wondered how to start a trucking business, then Apex Capital can help with their guide to starting a trucking company. They partnership is invaluable and Apex files most of the paperwork and forms for you.

Apex Capital Offers Plenty of Free Resources

We would suggest anyone in the trucking industry to take a look at the company’s website and social media pages where they provide a variety of information on factoring rates, industry news and even human interest stories on truckers.

This is where we learned about the inspirational story of Charles Ray Bell, a truck driver from Delhi, Kentucky. He reportedly was living a very unhealthy lifestyle, probably stemming from a difficult childhood in and around foster homes.

But Bell wasn’t going to be defeated-he figured out a way to use the dreaded detention downtime into a positive. He started exercising, running to be exact. He even finished the 100-mile Florida Keys ultra-marathon which stretches all the way from Key Largo to Key West.2 Wow!

One thing we love to see is that the company is involved in their community- and gives back. Their participation in Cancer Care Service walks, the Texas Pythian Home and Junior Achievement is a testament to this.

If things continue to go so well we may have to place an addendum to our review for Apex Factoring.

 

1https://www.quicktransportsolutions.com/truckingcompany/newyork/midnight-express-llc-usdot-2828321.php

2http://www.nkytribune.com/2015/05/paul-long-running-100-miles-in-the-florida-sun-heat-is-how-some-nky-residents-spent-a-day-or-more/

 

Update on Fleet Card Pioneer, WEX Inc.

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Fleet Card Pioneer, WEX Incorporated

WEX Incorporated is a South Portland, Maine based provider of corporate payment solutions and fleet card services to commercial customers primarily in the transportation, health care and travel industries. Wex operates offices around the world in countries ranging from Brazil and New Zealand to Norway and the United Kingdom. In total, WEX Incorporated employs over 3000 associates worldwide.

WEX Borrowing Facilities

WEX is set to report earnings that will be released next week. Given the recent upwards move in global interest rates, now is an opportune time to check in on WEX, who relies on variable or floating rate borrowing for a significant amount of financing.

Much of this is tied to LIBOR or the London Interbank Offer Rate, which has been moving higher along with U.S. Treasury rates. Case in point, the 3-month LIBOR has risen to 1.81%, up from roughly 50 basis points just a few years prior. Concurrently, U.S. 10-year Treasury note rates have doubled in the past few years and now stand at 2.80%. While still historically low, it is a trend that market watchers are keeping an eye on.

But WEX appears to be actively monitoring the rate moves. On December 27, the company reported an interest rate swaps transaction ($500 million in 5-year swaps) at an average rate of 2.21% that WEX expects will reduce the impact of rising interest rates on existing variable debt.1

Further, the company was also able to renegotiate $500 million of its borrowing facility through Banc of America, N.A. Mitsubishi (MUFG Union Bank), SunTrust and Citizens.2 The result was a half a percentage point reduction in borrowing rates (in conjunction with another tranche B loan which is to be set at 2.25% for LIBOR borrowings).3

Its moves like these that we like to see in the face of rising interest rates. It demonstrates a proactive approach by management to minimize the effects of higher rates on their financing capacities. After all, it is these financial resources which allow the company to manage its corporate payment platforms, as well as price factoring rates for invoice factoring, invoice financing and other small business funding facilities. These services fall under WEX’s Fleet One Factoring division, which provides net working capital to many independent trucking companies nationwide. As such, WEX technically competes with trucking factoring companies such as Apex Factoring and OTR Capital.

WEX Inc.’s Fleet Card Roots

WEX began offering its fleet card payments to trucking customers way back in 1983. Today, customers representing over 11 million vehicles receive a number of benefits including payment solutions and security.

For example, the WEX Fleet SmartHub and WEX Connect Apps are perfect for customers on the road. These allow drivers to locate the cheapest fuel on their routes, providing additional savings for fleet card members. Right on WEX’s website, they have a section where small business owners can compare fleet card offerings against the WEX fleet card. We will keep readers, often business owners who depend on small business factoring services, updated on WEX’s financial condition following earnings announcements. Until then, refer to our Fleet one factoring company reviews for more information.

 

1,2,3https://finance.yahoo.com/news/wex-inc-completes-term-loan-212400764.html

 

3 Ways to Improve Net Working Capital

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 Boost Your Net Working Capital

(Read Time 1-2 minutes)

IMPORTANT! If your business plans on borrowing money in the near future, start monitoring your cash flow. Positive cash flow is the key to repaying debt and is what banks scrutinize when making lending decisions. Banks monitor this is by calculating one of their favorite liquidity metrics, net working capital.1 

What is Net Working Capital?

Calculating net working capital is pretty simple. It’s the difference between current assets and current liabilities on the balance sheet. It indicates how well a business can meet it’s short-term obligations.

Generally, items listed as ‘current’ assets can be converted into cash within a year. Such items such as cash or marketable securities, inventory, raw materials and accounts receivable such as outstanding invoices.

But many businesses calculate it incorrectly. Don’t forget to include  raw materials under current assets. For small businesses, this can be anything from sand and cement to silver and palladium.

Current liabilities are expected to be paid within one year. These include short term debt, payroll taxes payable and accrued liabilities. Monitoring net working capital is crucial since running out of cash contributes to 29% of failed startups.2

Keep in mind, net working capital is more important to creditors-equity investors are more interested in profitability ratios. Improving net working capital will go a long way in stabilizing your business finances.

Improving Net Working Capital

A lender may be more favorable with terms even if net working capital is slim- as long as trends are improving. So, business owners should focus on the change in net working capital. There are a number of ways to improve net working capital. Here are three of our favorites:

  1. Factoring Invoices

A simple way to improve cash flow is through invoice factoring. Instead of waiting 30 or 60 days for customer payment, businesses can sell invoices to a factoring company as soon as they’re billed. The transaction provides immediate funds that can be used for payroll, inventory or debt repayment.

Factoring invoices kills two birds with one stone: It immediately improves cash flow and net working capital. Down the road, it can improve your chances of obtaining a small business line of credit with better terms. But at that point, you may be working with a factoring company who has extended you a revolving facility of its own.

Of course, if your customer doesn’t pay, the factor may come after you for the invoice amount. One way around this is non recourse factoring, which transfers the default risk to the factor. While more expensive, it makes sense if you have outsized receivables that could harm your business if defaulted upon.

  1. Sale-Leasebacks

Today’s businesses are choosing to be ‘asset light’. The days of purchasing capital intensive items real estate, machinery and equipment are dwindling. Many prefer to lease, not buy. This trend can also improve working capital and cash flow.

If your business owns significant hard assets (buildings or vehicles), consider selling them and leasing right back from the new owner.  The transaction can also lock in cheap ‘cap rates’ (from historically low interest rates) and protects against asset depreciation. Additionally, a new operating lease can lower your business’ debt-to-equity ratio, potentially lowering future costs of capital.

In short, sale-leasebacks unlock the cash tied up in illiquid, longer-term assets.

  1. Refinance Outstanding Loans

Finally, see if you can refinance existing loans to longer maturities. This would increase net working capital by reducing the ‘current portion of long term debt’, a current liability.4 If selling a fixed asset isn’t an option, considering refinancing the note against it.

If your business has a loan  (even an SBA loan) you may be able to refinance it if the terms are deemed ‘unreasonable’.5 Examples of such terms may include seller-financed deals, revolving lines (an asset based lending transaction) or the lender is simply unwilling to renew.6

Keep in mind, many factors offer revolving lines of credit in addition to factoring services. Check out our invoice factoring company reviews page for more insight.

 

1https://www.bizfilings.com/toolkit/research-topics/finance/what-banks-look-for-when-reviewing-a-loan-application

2http://www.burtcollect.com/blog/problems-reasons-businesses/

3http://www.ccim.com/cire-magazine/articles/real-estate-sale-leasebacks/

4https://www.accountingcoach.com/blog/improving-working-capital

5,6https://www.sba.gov/offices/district/mo/st-louis/resources/refinancing-debt-sba