August 14, 2015
The Federal Reserve recently signaled that it is likely to raise the target range for the federal funds rate this fall. The benchmark interest rate
Bizfi has been funding small businesses since 2005, when it was founded as Merchant Cash and Capital. Let’s Talk Payments spoke with Bizfi founder Stephen Sheinbaum about how small business will fare if interest rates rise.
LTP: Since Bizfi began in 2005, have you seen an increase in SMB/SME turning to alternative lending platforms?
Stephen: It’s been decades since small businesses had an easy time getting funding from a bank. But the consolidation and regulation that came with the recession made it even harder. The Treasury Department said recently that it costs banks about the same to underwrite a $5 million loan as a $200,000 loan, and most small businesses ask for far less than $200,000 when they do borrow. Guess which customers banks prefer? Small businesses turned to alternative financing during the recession, but they have not stopped just because the recession is over. For the second quarter of 2015, we had a 79% increase in originations from Q2 2014 and a more than 20% improvement compared to the first quarter.
LTP: What are your thoughts on the impact of the Federal Reserve raising rates and what it will mean for the millions of small-business owners looking for capital across the US?
Stephen: Higher rates are inevitable. But look at where we are now as an economy. The national unemployment rate was 5.3% in July and real GDP increased at an annual rate of 2.3% in the second quarter. For our merchants, sales are going up, not down. A vast majority of our customers are coming to us for capital for growth-oriented things, like expansion and renovation. They are doing well enough to withstand a rate increase, which is going to be gradual by the way. And the investments alternative finance companies have been making in their funding technologies mean our overall cost to fund a deal is likely to decrease even as bank rates increase.
LTP: With a close connection to SMB/SMEs on Main Street, when have borrowers turned to Bizfi?
Stephen: When we started, small businesses were definitely coming to us because they were getting turned down by banks. Or because they were so convinced they were going to be turned down, they didn’t even try to put in an application. Even now that the recession is over, it’s still not easy at a bank. The Federal Reserve said in February that a majority of businesses with less than $1 million in annual revenue and startups, were unable to secure bank credit in 2014. But businesses are not turning to Bizfi just because of this. Small businesses appreciate the fact that they can get the money they need from us in days, not weeks or months, and they won’t have to haul out a filing cabinet full of paperwork to do it. And remember, on the Bizfi platform, small businesses can find everything from short-term funding and invoice financing to long-term loans with SBA guarantees.
LTP: Can you give us an example of how MCC can provide alternative lending options for SMB/SMEs to start, maintain, or grow their business in a way that a traditional banking institution cannot?
Stephen: Shawn Daniel and Brandon McClure were childhood friends in Dayton, Ohio. Last year, they opened a barbershop in one of Dayton’s biggest malls. Headquarters Barbershop was so successful that, within six months, Shawn and Brandon had 10 barbers working for them and they got the opportunity to open a second location in another big mall in Dayton. But they needed capital to seal the deal and there was no way they could go to a bank: they needed the money quickly and they were still—in the eyes of a traditional bank—a start-up. Through Bizfi, they got the funding they needed in less than a week and their second location is scheduled to open later this month.
LTP: What was the goal of developing Bizfi and what has been the response in the marketplace since the launch this year?
Stephen: Bizfi is the natural outgrowth of a decade of work on technology and customer service. Month in and month out, we worked on making it faster and easier for small businesses to apply for and receive funding. From our beginning as a provider of short-term funding, we added funding options like equipment and franchise financing, and longer-term loans. We made the pre-approval process so fast that you don’t even have time to get a cup of coffee before it finishes.
The response, not surprisingly, has been fantastic. In March, we announced that we had originated $1 billion since we began operations as Merchant Cash and Capital in 2005. And things have only gotten better from there. For the second quarter of 2015, we had a 79% increase in originations from Q2 2014 and a more than 20% improvement compared to the first quarter.
LTP: With marketplace lending now gaining the attention of the federal government, have industry leaders in lending thought of joining together to respond to possible regulations?
Stephen: I’m in favor of thoughtful regulation because I think it will make it clearer to see who the leaders are in alternative finance. I think the operating procedures that Bizfi has established, the investments that we have made in financial technology and our customer service, make us a model for what the industry can be.
LTP: Can you leave our readers with any exciting news, updates, or expectations for the second half of 2015?
Stephen: We expect our originations through Bizfi to continue their strong upward trajectory. It will take us far less time to reach our next $500 million than our first. We are working on partnerships in the United States and around the world, and we are continuing to improve our use of technology, and our use of structured and unstructured data in our underwriting.
Online alternative finance marketplace Bizfi is the latest platform for Mr. Sheinbaum, who has been a leader in alternative finance since 2005. It evolved from his first company, Merchant Cash and Capital and their proprietary technology has made funding faster and easier for small businesses in a wide range of industries all over the United States. Since inception, the Bizfi family of companies has originated over $1.1 billion in funding to more than 21,500 individual business owners.
Mr. Sheinbaum has authored several articles that have appeared in a variety of national publications, he has spoken on numerous industry panels, and he was most recently featured on CNBC and Bloomberg where he discussed the current state of lending to small businesses.