October 7, 2016
If It Walks Like a Duck, Talks Like a Duck, and Acts Like a Duck, It’s a loan!
By Bob Coleman
Editor, Coleman Report
Today we have three short video snippets from the NACLB Conference.
- Bob Coleman, Editor, The Coleman Report and Sean Murray, President and Chief Editor, deBanked Disagree on What to Call Merchant Cash Advance Transactions
- Thomas Zernick, President, SBA Lending at First Home Bank Discusses SBA Interest Rates
- A Message from Conference Co-Founders Kris Roglieri, CEO Prime Commercial Lending and Mike Rozman CEO & Co-founder, BoeFly
Bob Coleman, Editor, The Coleman Report and Sean Murray, President and Chief Editor, deBanked Disagree on What to Call Merchant Cash Advance Transcations
Youtube video Link: https://youtu.be/ReXQAP052Hc
Panelists: Bob Coleman – Editor – The Coleman Report
Sean Murray – President and Chief Editor of deBanked
Moderated by: Michael Rozman – CEO & Co-founder – BoeFly
Mike Rozman: Merchant Cash Advance, the idea is to sell future credit card receipts or some other asset sale. Fundamentally it is not a loan. The provider of that capital is buying that future cash flow stream as an asset sale.
Sean Murray: Correct
Mike Rozman: In the end of the day that small business is acquiring capital from an SBA lender, a non-bank lender, conventional products and other capital. Give me your perspective on that distinction from it being an asset sale, not a financing vehicle.
Bob Coleman: Sean and I disagree on this. If it walks like a duck, talks like a duck, and acts like a duck, it is a duck. It’s a loan! I understand the legalities and the attorneys out there that say differently. But it is a loan. The reason that is important for the people in this room (loan brokers) is that U.S. Senator Warren is taking a very close look at this. If you are making money on your loan referrals with this type of transaction, that is going to become problematic. It’s a loan and Senator Warren does not care what you call it. It is an advance of capital to Main Street and she wants to make sure that the industry can defend 100% plus APR’s. That is a pretty tough hurdle that needs to be addressed. For you loan brokers, choose your MCA companies wisely. Choose your MCA companies that are inexpensive and do not get your customers into debt traps.
Sean Murray: Senator Warren is primarily focused on consumer transactions. The CFPB is her brainchild. Although, they are trying to get their way into business lending too. At the end of the day it is unfair to say that MCA transactions have a 100% APR. One of the most important features of an MCA is that there is no fixed time frame. If you give a restaurant $10,000 upfront you will be taking a percentage of his/her future sales until they reach a pre-determined purchased amount. That could take 3 months, it could take 9 months, it could take 18 months. Sure you can make projections but APR deals with actual time frames. You can’t put an APR when you don’t know when the time frame is. I don’t think it is fair to say this is a 100% APR transaction when it is actually a purchase of future sales. The MCA company is taking a risk with a virtue that they might go out of business, essentially they are unsecured. There are a lot of reasons why some of them might be expensive other than just for the sake of it.
Bob Coleman: The Consumer Financial Protection Bureau is coming after small business lending.
Sean Murray: If they do it is because of Section 1071 of Dodd-Frank (SEC. 1071. SMALL BUSINESS DATA COLLECTION) which gives them the ability to collect data on Small Business Lending. Now coincidentally that effects everybody in this room. It defines a Small Business Finance Institution, which is anyone engaged in business finance. Whether you are the referring agent or you talk to a business owner at some point during the transaction, everyone will be subject to data collection and have to report to the government, that is probably going to happen.
Thomas Zernick, President, SBA Lending at First Home Bank Discusses SBA Interest Rates
Youtube Link: https://youtu.be/zHgrHeI5g8o
We were appropriated this past year about $26.5 billion. Up to about two weeks ago we were able to use about $22 billion of our appropriations, so the good news is SBA is a very viable source of capital and it’s very well funded. The good news is no matter who wins the election in November, whether it’s Clinton or Trump, I think that you’ll see SBA continue to be supported by Congress or the House and the Senate. We expect appropriations to be a very similar model for 2017, probably in the $26 billion range. We may even get that bumped up through the course of the year.
The bank servicing fee, the fee we pay the SBA is going to go up this year. So it’s going to be a little bit more expensive for the banks to do SBA business, but it still continues to be very profitable for all of us. SBA expects in 2017 to fund 55,000 loans. That’s a huge number of loans, so those of you that are newer brokers take advantage of a really cool conduit to capital. Believe it or not SBA is getting technology literate. We now have a platform where we can process a loan electronically through SBA called SBA One.
In fact, 30 years ago when I started with the SBA we didn’t have the Internet, we didn’t have email. We actually FedExed our packages into the SBA. We waited about six months for an answer and we closed the loan about six months later. Today we’re closing SBA deals in under 30 days, so it’s a very fluid and transparent process today. We see technology really coming into play, it’s how a lot of us are doing deals very, very quickly. On the interest rate side prime did bump up a quarter of a point in the past 12 months, but the interest rate charged on 7(a) is 2.75 over prime. So your borrower borrows at 6.25 percent floating, it’s still a great rate. I can remember in college prime was 21 percent, today it’s 3.5, so the access to low interest rates we see continuing into ’17.
I don’t think rates will spike on the SBA front. Again I see the banking industry absorbing that cost. If you haven’t checked out the SBA web site, write this down, it’s SBA.gov. It’s a fantastic tool for learning more about SBA. In fact, there’s about 2 million hits to that site a month right now. It’s a great resource to steer your clients to. SBA’s portfolio today sits strong. It’s $119 billion, but what’s pretty cool is the delinquency rate is less than 3 percent.
So the loans that the banks are doing under SBA and the non-banks are doing it under SBA are good assets. If you are talking to clients make sure you’re mentioning exports. Two-thirds of our world’s purchasing power sits outside of the United States. We think as a bank we are outreached to clients who are in the exporting business. I spoke to some of you that are doing business in Latin America, et cetera. There’s great SBA programs to help clients do exporting and take advantage of that great market out there. I really believe SBA continues to be a very efficient mechanism for you to be able to finance deals for your clients. Companies like Nike, FedEx, Under Armour, Ben & Jerry’s all started in business with an SBA loan. Let us help you help your client become the next Under Armour.
NACLB Conference 2016 — Co-Founders Kris Roglieri, CEO Prime Commercial Lending and Mike Rozman, CEO & Co-founder, BoeFly
Youtube Link: https://youtu.be/FDtlYRaMm2M