Today’s blog sees your usual wordsmith stepping aside in favour of some informed perspectives from Merchant Advance Capital’s own CEO, David Gens.
The Alternative Business Lending Industry Has Gone Public
When I first started in this industry, there were no public companies in the space. There were very few companies serving this market in Canada, and there was very little in terms of research or statistics about small business credit. Banks were spending less time, energy & money on providing small businesses with credit, creating a huge gap in the marketplace.
A lot has changed in recent years. Banks continue to shy away from extending credit to small businesses, but the gap that once existed is now being filled by an increasing number of players in the alternative business lending industry. I generally see this as a huge positive for the industry. It creates more competition which ensures that business owners can get the best possible deal and service. This is also forcing funding providers to innovate and create new products that better suit the unique needs of a wide range of different small businesses. Finally, the growth of our industry as a whole also creates more awareness among small business owners that there are alternatives to the bank.
On Deck Capital out of New York City (NYSE: ONDK) went public in December. On the back of strong loan growth and impressive technology, On Deck was able to fetch an impressive valuation well in excess of $1 billion, even though the company is not profitable and its revenues are a small fraction of this valuation. Growing investor appetite and increased awareness in the space has given rise to a large number of new players and an influx of capital. Our industry no longer seems like a small underserved and unknown niche – today it feels like a real main stream capital market that everyone is talking about and in which many are getting involved.
In these rapidly changing times, I think it is extra important for business owners to carefully select their funding partner. There are more choices now than ever, and business owners need to consider more than just the total funding amount or the cost of funds. It is equally as important to consider the payment structure, duration of the financing, renewal policy, and reporting tools, among other things.
But even more importantly, it is important to consider your funding partner as a long-term business partner. Make sure you share the same values, and that you are entering into a mutually beneficial, transparent, and positive business relationship together. Even if you are only in need of some quick short-term funds, it is still important to think about it as a long-term relationship, since having that partner in the future might come in real handy. As our industry becomes larger and more competitive, players such as On Deck are becoming increasingly data driven. As funding providers become more data driven, what they gain in efficiency they lose in flexibility, personality and relationship building. In a data driven environment nobody is taking time to learn about your unique story. The industry is fitting clients into boxes and becoming more like the banks that we set to differentiate ourselves from. You’re not truly building relationships when you are being seen as simply a statistic.
We believe in a balance between data and personal touch. With data, we can become quicker and more efficient, delivering solutions in a timely and frictionless manner. But with a mix of personal touch, we can take the bit of time necessary to learn about someone’s unique story, thereby tailoring a more personalized solution and using common sense in our funding decision. Our staff have been working with small businesses for years – they understand your challenges and work out practical solutions for you. Our culture is built on integrity and transparency so you get exactly what you expect. We take a great deal of pride in our work and believe strongly in our mix of data and personal touch. In an industry that is becoming increasingly noisy, crowded, and data driven, I feel that it is important for business owners to see a business partner on the other side of the funding table – one that they can trust and rely on, and one with which they can build a genuine long-term business relationship.