Insights on SME Lending in 2016 from Bizfi and Metropolitan Equity Partners

On December 15, Bizfi, a FinTech company whose online small-business finance platform combines aggregation, funding and a participation marketplace, announced that Metropolitan Equity Partners (Metropolitan) has provided a structured financing facility of $65 million to the company to drive growth.

Bizfi and its proprietary marketplace and funding technologies have provided in excess of $1.3 billion in financing to over 26,000 small businesses across the United States since 2005. Since Bizfi launched its aggregation platform in 2015, the company has experienced a 72% growth in year-over-year gross originations.

The company has certain plans on the way to use raised funds. Here they are:

- Expand its suite of funding programs, increasing its ability to fund America’s small-business capital needs

- Increase the speed at which funding applicants access direct financing from Bizfi

- Develop and implement a national marketing campaign designed to increase the awareness of the Bizfi brand and platform within the small- and medium-sized business community

Stephen Sheinbaum, Founder of Bizfi, also shared with the LTP team the milestones he has for the company. Speaking of long-term plans for Bizfi, Stephen said, When we announced in March 2015 that we had originated our one billionth dollar of funding for small businesses, we made it clear that it wouldn’t take a decade for us to originate the second billion dollars.

We expect to close out 2015 at very close to $1.4 billion originated and to build substantially on that volume in 2016. We are also going to build on the technology we developed this year. That means getting our white label and API products into the hands of more financial institutions and small-business service partners, which will substantially shorten the time that small businesses spend searching for funding. We will be making it easier for funded businesses to track their accounts, and we will be expanding our overseas partnerships beyond our relationship with Japan’s Credit Saison. And we’ve said that there could be an equity offering in our future.

As 2016 is already here, it is important for companies to build strategies for the coming year. Mr. Sheinbaum shared with the LTP team his insights and predictions regarding SME lending in 2016, In 2016, you are going to see more alliances between alternative finance companies and traditional banks, commented Stephen.

We are going to be building on what each side does best in order to provide the most appropriate funding and get it in the hands of small-business owners as quickly as possible. I also expect that small-business lenders will be using more technology to better predict repayments, which will help us to lower our costs to borrowers. At Bizfi, we’ve already begun to explore incorporating deeper analysis of unstructured data into our underwriting process. I think it will surprise people to see what we uncover, he added.

We also received interesting comments from the Metropolitan, who invested in Bizfi, about the reason Metropolitan is particularly interested in small-business lending and Bizfi, While Metropolitan has been interested in the overall trend of small-business lending for some years now, it has been prudent for us to only work with those companies that have a specialized niche in deal sourcing as well as take a principal approach to owning a material portion of the risk it underwrites. Quality infrastructure to enable ongoing monitoring and servicing of the borrowers is also key to success, which we value highly.

Commenting on the state of alternative lending solutions market that emerged dramatically in recent years, Paul Lisiak, Managing Partner of Metropolitan Equity Partners, said, While the tight race will definitely create a high bar for the new entrants into the space, the market itself is sufficiently large such that it is not ‘winner take all.’ For example, even after the fallout from the financial crisis, there remain thousands of successful banks in the marketplace which offer different approaches to the classic lending model. Our attraction to BizFi is that they recognized early on that this market opportunity is a marathon and not a sprint.

Paul also shared with us his expectations from the investment in Bizfi, saying, Metropolitan is looking to be a partner to BizFi as they achieve yet another new level of success. We have invested in the BizFi business over the past three years at different times and in different ways – but each time with the goal for the capital to achieve a specific milestone by the company. Our new investment is driven by that track record.

Metropolitan’s approach seeks to understand a prospective investment company’s needs and adapt our involvement within our investment strategy’s parameters. We measure our success by our investment returns as well as by our involvement being an important step in the growth strategy of a company. We are the largest participant in BizFi’s marketplace today and expect the company to expand upon the success we are experiencing today.