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SmallBusinessLending.io Finance • Technology • Legal & Regulatory • Strategy THE ALTERNATIVE LENDING REPORT Volume 1, No. 2 May 4, 2017 input/output CAN ALTERNATIVE DATA SOLVE ONLINE LEGAL & REGULATORY LENDERS’ ‘ALGORACISM’ PROBLEM? MCA Funder 3 Leaf Capital Called a Fraud by Partner ........................... 3 By Tim Lloyd STRATEGY A March 2017 letter written by Con- Beyond the prevalence of high costs, Online Commercial Lending: gressman Emanuel Cleaver, II (D-Mo.), double dipping, hidden fees, misaligned How it’s Changing the Landscape ............... 4 to Consumer Financial Protection Bureau sales incentives and stacking, the HBS Live Oak Cuts Risk, Woos Director Richard Cordray raises fresh con- paper opines that new algorithms could Women in Business .................................... 5 cerns about “algoracism” tainting the credit- “create unfair or discriminatory access to FINANCE risk-scoring models used by online lenders. credit.” This problem disproportionately Online Lending Associations Rep. Cleaver’s suspicions draw heav- affects black, Hispanic and women-owned Targeting Fintech and Education ................. 6 ily from a 2016 Harvard Business School businesses, in addition to entities that NEW TECHNOLOGY paper titled the “State of Small Business operate in low-income neighborhoods. & PRODUCT LAUNCHES Lending,” which addresses digital disrup- Biased algorithm design can occur if Platform announcements, new tion’s impact on regulation. Cleaver’s let- engineers code data correlation parameters software and services, and notable ter highlighted five predatory practices with attributes that make inadvertently product releases. ......................................... 7 cited by the HBS paper as pervasive in the discriminatory assumptions, which could INDUSTRY NEWS “Wild West” of online lending and alleges be violating the Equal Credit Opportunity A recap of recent news of that risk-scoring algorithms may be Act. ECOA prohibits creditors from dis- importance to lenders, brokers, designed to discriminate against minority- criminating against borrowers on the basis and service providers. ................................ 8 owned, small business borrowers. of race, color, religion, national origin, sex, LOAN TAPE Minority-owned businesses comprise marital status, age or because they receive Banks & Companies with Exposure roughly 15% of the 28.8 million small income from a public assistance program. to Small Business Loans ............................ 10 businesses in the United States, according But it’s difficult to identify biases in M&A + Partnerships & New Investments ... 11 to a 2016 Small Business Administration fintech credit-scoring models due to regu- Indices/Funds of Interest/SBA Activity ....... 12 report. latory uncertainty about lenders’ obliga- Credit Conditions/Indicators...................... 13 Turn to ‘Algoracism’ on page 14 ALR’S RESEARCH ACTIVITY REPORT April 18-May 2 STATE OF THE MARKETPLACE LENDING SECTOR 184 Daily news items published By Brian O’Connell (Note: This is the first in a two-part series on the future of marketplace lending. 1,200 Part 2 will appear in the next Alternative Lending Report.) Companies researched for the Small The sugar rush may be over for the online lending sector, as 2017 is Business Lending Directory starting to look a lot like 2016, which saw industry angst after layoffs, scan- dals, and financial underperformance. 2,540 OnDeck lost $36 million in the fourth quarter of 2016, and lost $86 mil- People researched for the Small lion for the year. Business Lending Directory Lending Club, reeling from a data-tampering scandal that triggered the ouster of company CEO Renaud Laplanche, saw loan originations fall 23%, 16 to $1.99 billion in the fourth quarter of 2016 and has seen its stock price Datasets researched move sideways ever since. Chicago-based online lender Avant shed workers in 2016, reportedly Turn to ‘Marketplace Lending’ on page 16 Have questions? Call us (516) 876-8006. For use by original recipient only. It is illegal to forward or otherwise distribute without permission. THE ALTERNATIVE LENDING REPORT Commentary EDITORIAL Editor & Publisher Steven Dresner ADDRESSING THE LACK OF TRANSPARENCY Contributing IN SMALL COMPANY LENDING Editor Steve Lord By Steven Dresner Contributing People who take news reporting seri- thresholds to define the scope of the Writers ously consider the “Five W’s” principles to small company lending market. We Steve Evans live by. According to the Five W’s, infor- do not cover consumer lending, except Grant Harvey mation can only be considered complete where we believe information in that Tim Lloyd if you’ve answered the questions of who, segment would be useful to our readers. Brian O’Connell what, when, where, and why. And so I A final note about our coverage: Gary Stern thought it would be fitting to introduce While we publish information about you to The Alternative Lending Report by developments globally, our primary focus Production Editor Gary Newman answering these questions. is on the United States. Who’s the publisher? DealFlow Why are we doing this? There’s very Operations Financial Products (a/k/a “DealFlow”), little transparency in this market. With- Lenny La Sala is the publisher of The Alternative Lend- out government-mandated loan report- ing Report. As a company, we have con- ing, or public aggregation of data, there’s Technology Tarun Gupta siderable experience providing news, simply not enough information for peo- information, and analysis across a variety ple to make good business decisions. of deal markets. Since 2003, our team Our call-to-action at DealFlow has has worked to make capital markets always been to make markets more THE ALTERNATIVE LENDING REPORT more efficient by offering unique insight efficient through information and data. to thousands of clients of our publica- That’s what we’re aiming to do in the DealFlow Financial Products, Inc. P.O. Box 122 tions, events, and database services. small company lending segment. Syosset, NY 11791 If you’re a lender, broker, or service What’s our publishing frequency? T (516) 876-8006 provider, we’re working for you – and Our first product, Small Business Lend- F (516) 876-8010 The Alternative Lending Report is meant ing Daily, is a free electronic newsletter [email protected] to serve as your trade publication. that’s published Monday through Friday www.smallbusinesslending.io What does the report cover? The and delivered to your inbox. We cover a The Alternative Lending Report™ is published on the first and third Thursday of every month, Alternative Lending Report is dedicated broad swath of topics in our Daily email except the second Thursday of August and the second to covering the small business lending such as “traditional” bank lending and Thursday of December. Subscription rate: $995 per year for 22 issues, delivered electronically. ecosystem including alterative investment we aggregate original articles, research All rights reserved. © 2017 DealFlow Financial structures, online and marketplace lend- reports, and news releases. Products, Inc. Photocopy permission is available ing, and non-bank financing structures The Alternative Lending Report is pub- solely through DealFlow Financial Products. Copy- ing, distributing electronically by email, or duplicat- such as factoring, invoice financing, mer- lished in PDF on the first and third Thurs- ing this publication in any manner other than one permitted by agreement with DealFlow Financial chant cash advance, and revenue-based day of each month. As we enhance our Products is prohibited. Such actions may constitute financing. As the flag on the cover of this website, new information will be updated copyright infringement and leave perpetrators sub- ject to liability of up to $150,000 per infringement report suggests, we’re focused on innova- daily on SmallBusinessLending.io. (Title 17, U.S. code). The Alternative Lending Report tions in finance and technology, legal and In the near future, we will also be and The Alternative Lending Conference™ are trademarks of DealFlow Financial Products. regulatory dynamics, and strategy within launching innovative webcasts, live events The Alternative Lending Report is a general-circula- the alternative lending segment. and training programs, and subscription- tion publication. No information herein should be construed to be recommendations to purchase, Regarding the borrowers we’ll cover, based analytics. As these products and retain, or sell securities, or to provide investment we are using criteria based on the size services come online, we’ll notify you and advice of the companies mentioned or advertised. No fees are accepted for publishing any editorial of a loan (approximately $1M credit keep an open channel for your feedback. information. DealFlow Financial Products, Inc., its or below) and/or the size of the com- In the meantime, we hope The Alternative subsidiaries, and its employees may, from time to time, purchase, own, or sell securities or other pany (approximately $20M in revenues Lending Report meets your expectations. investment products of the companies discussed or or below). Academic whitepapers and If you’d like to subscribe to the report, call advertised in this publication. industry experts commonly use these us at (516) 876-8006. SmallBusinessLending.io 2 May 4, 2017 For use by original recipient only. It is illegal to forward or otherwise distribute without permission. THE ALTERNATIVE LENDING REPORT Legal & Regulatory MCA
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