Alternative Financing & The Future of Equipment Finance. 53rd Annual Convention Monday October 20, :30 pm 4:30 pm San Diego, CA

Transcription

1 Alternative Financing & The Future of Equipment Finance 53rd Annual Convention Monday October 20, :30 pm 4:30 pm San Diego, CA

2 Alternative Financing & The Future of 2 Equipment Finance Moderator: Scott Thacker CEO Ivory Consulting Corporation Presenters: Martin Klotzman Analyst Ivory Consulting Corporation Mukul Mittal EVP Product Development Cloud Lending Inc. Gina Mackenzie Strategic Partnership Manager RapidAdvance Michael Rabil Director, Partnerships Funding Circle USA Charles Wendel President FIC Advisors, Inc.

3 3 Agenda ELFF Study Overview Alternative Finance Overview Alternative Finance Businesses Typical Business Models Deep Dive Rapid Advance Deep Dive Funding Circle USA Growth Rate and Expected Trends Regulation Technology Opportunities and Threats ELFA Companies Q & A Closing Thoughts

5 Coming Soon! Look for the final study report November

7 7 Alternative Finance Overview Redefining an industry

8 8

9 9 Is banking next? Alternative Finance Overview

10 10 Alternative Finance Overview Bank Qualified and Non-Qualified Business Category Number of businesses (Millions) Potential Dollar Loan Value (Billions) Pct of Businesses Pct of Value Qualifying 3.7 $ % 23.8% Not Qualifying 32.4 $1, % 76.2% Total 36.1 $2, % 100.0%

11 11 Alternative Finance Overview Why won t banks make small business loans? Reputation risk of high yielding loans Loans are low margin Increased regulatory scrutiny Increased capital requirements Operate within narrowed credit box Banks can t justify the cost Loans must be in excess of $100,000 to cover costs; some analysts estimate $250,000.

12 12 Alternative Finance Overview What is Alternative Finance? An array of financial services offered outside of federally insured banks How long has alternative financing been around? Alternative financing activities have existed as long as borrowers needed lenders Who typically pursues alternative financing? Micro and small businesses, including companies with revenue up to $10-20 million What is the loan range? Loans can be as low as $1,000 and over $1 million on the high end

13 13 Why are investors attracted to alternative lending? Access a new asset class Attractive returns Rigorous underwriting Alternative Finance Overview 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 3 Year 5 Year 4.00% 2.00% 5yr N/A 0.00% Funding Circle USA 2 Dow Jones Corporate Bond Index Vanguard Total Bond Market ETF Vanguard Corporate Short Term Bond ETF Vanguard Short Term Bond ETF 1 Representative alternative investment rates (as of September 2014) shown here are illustrative, and many of these investments have different characteristics or risk profiles than investments in Funding Circle. 2 Expected rates of return across all current risk bands for loans by FC USA, and net of servicing fees

14 14 Alternative Finance Overview What are the key drivers?

15 15 Alternative Finance Overview We are always connected

16 16

17 17 Alternative Finance Overview Technology makes it easy

18 18 Alternative Finance Overview

19 19 Alternative Finance Overview

21 21 Reward-based Donation-based Lending-based Equity-based Typical Business Models

22 22 Reward-based Characteristics Creative-based projects Funded in days 5% fee for successful projects Easy application and screening Merits no financial return

23 23 Donation-based Characteristics Less restrictive guidelines Fund charities, trips, anything Easy application and screening Merits no financial return

24 24 Debt-based Characteristics Provides access to debt financing for small business owners Provides alternative structured investment product for investors Creates innovate way to underwrite and evaluate small business loans

25 25 Equity-based Characteristics JOBS Act could have significant impact Investors receiving stake in company Can raise up to $1 million Investors must be accredited (pending) Build an ownership portfolio

26 26 Classifications of Borrowers

27 27 Borrower: Near-prime SBA Lending Almost but not quite bankable Banks want a government guarantee I.E. SmartBiz profiles SBAs for banks

28 28 Borrower: Mid-prime: Crowdfunding Heading towards bankability Usually don t have sufficient collateral or history

29 29 Borrower: Sub-prime: Merchant Advance Lending Fully dependent on risk-taking lenders MCA typically focuses on only sub-prime Invoice financing firms primarily participate in this space

31 31 A Supplement to Traditional Financing Flexible funding for your small business clients.

32 Founded in headquarters Bethesda, MD Acquired in 2013 by Rockbridge Growth Equity Private equity firm of Dan Gilbert with holdings such as Cleveland Cavaliers basketball team, Quicken Loans, Rock Ventures, Rock Connections, etc. Unique access to best practices and resources BBB accredited and A+ rating Heavy focus on lower middle market and small business owners direct and through partners Over $700 million in funding to tens of thousands of business owners 32

33 33 RapidAdvance

34 34 RapidAdvance

35 35 Challenging Credit Environment

36 36 New Programs Fill in the Financing Gap Business Owner Unexpected opportunity Short-term cash flow Expansion Inventory and payroll Credit Card Advance / Daily Payment Loan More options for your clients Easy: streamlined underwriting Fast: funding within 7 days Subordinated: no impact on financial institution collateral Traditional Lender Customer unable to meet credit guidelines now Strong future revenue potential

37 37

38 38 Benefits to Business Owners No personal guarantees for repayment on credit card advance No security interest taken No points or upfront fees No fixed monthly payments No coupons or checks to write No impact on ability to qualify for other financing No business use restrictions on the funding No hassles - quick application & fast funding

39 39 Benefits to Lenders or Leasing Professionals Add depth to client relationships. Provide additional piece of transactions. Additional revenue.

40 40 Flexible terms. Up to $500,000. Decisions within 48 hours. Subordinated to financial institution. Small Business Loan Perfect for businesses looking for a traditional loan and need it now Short-term payback up to 12 months Automatic daily payments and easy to renew Credit Card Advance Innovative, unsecured financing for businesses that accept credit cards Repayment from future credit card receipts Stand alone or with merchant services Line of Credit Offers flexibility in funding amount and duration Draw funds only when needed Flexible repayment terms SBA Bridge Loan Meet short-term funding needs during financial institution & SBA approval processes Eliminate obstacles to expedite SBA approval Pay tax and other past-due obligations

41 41 Credit Card Advance Vs. Loan Advance Up to 200% of credit card receivables Payments vary with cash flow Loan 50% to 70% of bank deposits Fixed Payments No UCC filed No Personal Guarantee UCC-1 Filed Personal guarantee

42 42 When Is a Credit Card Advance/Daily Payment Loan a Great Fit? Smaller deals transactions under $500,000 Insufficient collateral aged accounts receivable bonded inventory mobilization or manufacturing process Challenging industries restaurants retail construction healthcare Obstacles liens unsubordinated debt Industry Thoughts Community banks bear a disproportionate cost of regulatory compliance. As a result, loans for less than $100,000 have all but evaporated. Community Bank CEO ICBA Convention

43 43 How It Works - Example Business owner has $200,000 per month in bank deposits. Daily Payment Loan $140,000 advance 70%) paying back $161,000 (1.15 factor) 10 month transaction $732 daily payments, 22 days per month

44 44 Sample Transactions $100,000 to a trucking company to purchase a new hauler $25,000 to a restaurant to update decor $100,000 line of credit to medical office bring in new equipment

46 46

47 47 We understand small businesses. Because we are small business owners.

48 What is Funding Circle? Funding Circle is the world s leading online small business loan marketplace. We originate and evaluate small business borrowers to match them with institutional and accredited investors in a private marketplace. To date, we have funded over $600 million in loans to over 5,500 small businesses globally. This year alone, we plan to lend $570 million to small businesses in the US and UK. Backed with $123 million in venture financing from Accel, Index, Union Square Ventures and Ribbit Capital.

49 What is marketplace lending? Marketplace lenders aggregate capital from investors to lend out to individuals or businesses The industry is expected to grow to $1 trillion in annual loan volume by 2025 (1) Funding Circle is the leading global small business loan marketplace Investors looking for good returns Interest and Principal Businesses looking for simple and fast finance 1% servicing fee on total loans Business Loan 2.99% origination fee (1) Moldow, Charles A Trillion Dollar Market, By the People, For the People (2014) 49

50 50 Why do small businesses choose Funding Circle? Fast: capital in under 14 days Simple: pre-qual in seconds, 10 min online application White glove service: account manager and underwriter for every borrower Fair & competitive rates: starting from 8.99% Transparent: no hidden fees, loan calculator

51 51 Speaking of transparency, how do we stack up?

52 52 How do businesses use our loans?

53 53 Say goodbye to 10 lbs of paperwork

54 54 Snapshot of our pre-qual

55 55 We re building a better financial world come join us! [Partner Logo] We offer attractive fees for referrals: 1% to 1.5% of the loan Just like our loan application process, becoming a FC referral partner is a simple process We make your job easier with your own online portal so you can submit, sort and track applications. You also get your own dedicated account manager and underwriter who specialize in referral loans

57 57 Growth Rate and Expected Trends Yes, today alternative lending is relatively small in size, but

58 58 Growth Rate and Expected Trends

59 59 Growth Rate and Expected Trends Recap Currently 1.4% of loans outstanding Growing in size 100% annually Traditional lenders lend to 10% of borrowers or 25% market opportunity Alternative lenders focus on the other 90% and 75% of market Analysts estimate it could dominate US small business lending within 10 years

60 60 The Rise of the Branded Competitor

61 61 Future Challenges Increased competition Lower margins Dumb money Entry of traditional players Credit downturn Consumer Financial Protection Bureau

63 63 Regulation Open Discussion

65 As expected, innovation is happening outside of Banks Traditional model Innovations

66 Banks, as intermediaries, adds to the cost of borrowing and lending

67 Marketplace Lending is Disintermediating

68 Technology is an Enabler Computers Internet Access Security Authentication Online Payments Online View of Financial Data Online Banking Smartphones Tablets Mobile Banking Cloud Scalability Cost of Deployment???

69 Cloud Lending Open Lending Technology Platform Cloud Lending! Multi-tenant cloud Extendable Flexible

70 Origination Servicing Collections Back office core Lending Technology Cloud Lending helps you automate Lending

71 HarMoney.com - P2P Marketplace in New Zealand and Australia Front end website API Marketplace Origination Underwriting Servicing Collections Back office Infrastructure Accounting CRM

72 Go Capital - Truck Leasing Brick and Mortar CRM Origination Underwriting Collections Recovery Back office Infrastructure Accounting Mobile

73 Foundation Capital predicts Marketplace Lending to be a trillion dollar industry by 2025

74 So, what s stopping the Leasing Industry from taking advantage of this phenomenon?

76 76 Opportunities and Threats - ELFA Companies Opportunities Enter alternative finance industry directly Provide referrals or join syndications Lend to or invest in alternative finance companies Join loan market places Use as a resource pool for talent

77 77 Opportunities and Threats - ELFA Companies Threats Dominant small business lender Movement into middle market Visibility viable and attractive alternative The technological curve Social Media

78 78 Final Thoughts

80 80 Session Title Q & A

82 82 Thank you for Participating Martin Klotzman Ivory Consulting Corporation Gina Mackenzie Rapid Advance Mukul Mittal Cloud Lending Inc. Michael Rabil Funding Circle USA Scott Thacker Ivory Consulting Corporation Charles Wendel FIC Advisors, Inc.