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SmallBusinessLending.io Finance • Technology • Legal & Regulatory • Strategy THE ALTERNATIVE LENDING REPORT Volume 1, No. 1 April 20, 2017 input/output GLOVES COME OFF IN COLORADO COMMENTARY ‘TRUE LENDER’ CASES Addressing the Lack of Transparency in Small Company Lending ......................... 2 By Steve Evans STRATEGY “True lender” lawsuits filed in Colorado and Madden v. Midland Funding, LLC, With SBA Budgets on the Chopping highlight the ongoing legal ambiguity of from 2015 as legal authority for claims Block, What’s the Lending marketplace lenders using the bank partner alleging usury and other violations of the Environment Going Forward? ..................... 3 model. The latest dispute began earlier this state’s Uniform Consumer Credit Code. LEGAL & REGULATORY year when Colorado’s attorney general filed Referring to the Madden case, Colo- • Recent Litigation Illustrates complaints in state court against Marlette rado argues that “a bank cannot validly Why Merchant Cash Advances Funding and Avant of Colorado on behalf assign [federal interest rate exportation] Are Not Loans .......................................... 6 of the administrator of the state’s Uniform to a non-bank.” However, in that earlier • Bankrupt NuLook Now Facing RICO Suit ....................................... 8 Consumer Credit Code. Later amended Madden case, the dispute involved the and removed to federal court, the suits sale and assignment of charged-off debt NEW TECHNOLOGY allege violations based on earlier true lender – not loan originations under an ongoing & PRODUCT LAUNCHES and loan assignment cases. According to arrangement between a non-bank lender Platform announcements, new software and services, and notable the complaints, these non-bank companies like Marlette and Avant, and federally product releases. ....................................... 10 are the true lenders because they market insured institutions like Cross River and and service loans originated by New Jersey- WebBank. The banks earlier this month INDUSTRY NEWS based Cross River Bank and WebBank, a jumped into the fray with filings for A recap of recent news of importance to lenders, brokers, state-chartered institution in Utah. The declaratory judgment against Colorado. and service providers. .............................. 12 banks sell the loans to their partners. “The decision in Madden was incor- rect based on longstanding banking legal LOAN TAPE Relevant Litigation Still Pending precedent,” says Mike Tomkies, a partner M&A + Partnerships ................................. 14 In both cases, the AG’s complaint cites with Dreher Tomkies in Columbus, OH, New Investments ...................................... 15 the 2014 case CashCall, Inc. v. Morrisey, specializing in banking and finance law. Indices/Funds of Interest/SBA Activity ....... 16 Credit Conditions/Indicators...................... 17 Turn to True Lender on page 20 LENDER SATISFACTION Satisfaction percentages of applicants ONLINE PLATFORMS HAVE who were approved for financing: CHANGED BROKERING DYNAMICS Small Bank 80% 15% 5% By Gary M. Stern Situated in his lower Broadway office, Nick Defonte who runs Broad- Credit Union 78% 19% 3% 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 CDFI 77% 22% 1% 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. Large Bank 61% 24% 15% 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- Online 46% 35% 19% ment schedule; Accion lends to businesses open less than six months, and Lender Rapid Advance advances up to 250% of monthly credit card sales. In the past, savings banks and community banks issued these small busi- Satisfied Neutral Dissatisfied Turn to Brokering Dynamics on page 18 Source: Small Business Credit Survey, Federal Reserve Banks 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 By Steven Dresner Steve Lord People who take news reporting seri- thresholds to define the scope of the Contributing 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 Jane Yu you to The Alternative Lending Report by developments globally, our primary focus answering these questions. is on the United States. Production Editor Gary Newman Who’s the publisher? DealFlow Why are we doing this? There’s very Financial Products (a/k/a “DealFlow”), little transparency in this market. With- Operations is the publisher of The Alternative Lend- out government-mandated loan report- Lenny La Sala ing Report. As a company, we have con- ing, or public aggregation of data, there’s siderable experience providing news, simply not enough information for peo- Technology Tarun Gupta 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 Alternative Lending Report is dedicated broad swath of topics in our Daily email on the first and third Thursday of every month, 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 chant cash advance, and revenue-based day of each month. As we enhance our permitted by agreement with DealFlow Financial 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 Regarding the borrowers we’ll cover, based analytics. As these products and construed to be recommendations to purchase, 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 April
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