While I was recently watching a cable program, Larry King -- the iconic talkmeister/hawkmeister -- appeared on a new commercial urging me to call an online lender. King said that between the phone and the Web, I might be able to qualify for up to $250,000 within minutes. What's more, I could get the cash within a day!
Thank you Larry King for what actually is a wake-up call about the commercial finance and lending sector. People with occupations in financing and lending are undergoing a revolution: New attitudes about banking fueled by rapidly advancing technology.
It is widely acknowledged that a growing number of Americans no longer use a traditional bank for anything. Millennials, soon to be management leaders of companies with financing needs, embrace the culture of alternative banking. Data and trends show that they continue to disengage banks, usually because of what they perceive as “unfriendly” policies and fees.
With the enactment of Dodd-Frank resulting in government regulators becoming aggressive on enforcement and penalties, compliance now comes first. Customer service and accommodations are no longer priorities for banks.
As an example, in the past several years the investment banking sector has expanded into the small- and middle-market business sectors. In large measure traditional banks, have retreated from these prospects. CFOs and controllers of enterprises seeking $5 million to $25 million have become increasingly open-minded in how an investment bank can address their financing needs.
The “lender of last resort” perception about factors, asset-based lenders and purchase order finance firms is changing. Accountants, lawyers, brokers and appraisers have become more understanding about commercial finance. The shakeout of executives at traditional banks has led to these people re-inventing themselves in a variety of innovative and different models in entrepreneurial financing and lending.
For example auto loans, long considered a staple of banks, credit unions, and auto manufacturer-owned finance companies (i.e. Ally Bank, Ford Credit), are now being competitively challenged by independent online financing services. Vehicle loans are generally very standard posing low risk with the vehicle as the asset. So it makes sense that this whole process could be streamlined and transacted online. Creative marketing and advertising with advanced underwriting and quality customer service can make the difference.
Look at the versatility in merchant cash advances now, where generally there was a one-month limit. Now this financing can run as long as two years. Factors and asset-based lenders are now also getting into this.
Factors and ABLs are being forced by the dictates of today’s global economy to finance foreign deals and entities, which is still considered to be very risky. The factor or ABL who cannot transact international trade receivable financings can lose opportunities.
Many banks and conventional funding sources have lost their enthusiasm for oil deals because of today's volatile marketplace affecting drillers, shippers, distributors, refiners and retailers. Independent financial service innovators are already figuring out how to underwrite these new terms and conditions.
The plethora of government and taxpayer dollars flowing into the healthcare/medical industries combined with shifting responsibilities influenced by Obamacare have opened the window for capitalists to fund these medical bills. As increased status for torts and medical claims evolves, finance mechanisms for the dependency period of as much as several years, have become a good risk.
Also, there are opportunities in litigation finance for claim owners who want to finance the costs of pursuing their legal claims with sources of capital and who also understand the business of law. This enables companies to pursue meritorious legal claims without assuming all the risk or exceeding budgetary constraints.
Now financings are done on future contract payments and projected revenues streams (monetizing long-term, non-cancellable contracts in Wifi, cable or phone services). It’s the latest method of injecting cash flow, credit facilities, and working capital into a company.
There is a great deal of lending potentional with mineral rights today for principals who have rights on property and want to use the quality and valuation of the minerals and natural resources as collateral for financing.
In fact, financing today is no different than navigating an oil boom, a gold rush or a hot stock market: Knowing when to get in, how to make transactions during a trend, and when to exit. Our high-tech world with instantly digitized information and communication, now reveals how machine learning and emerging artificial intelligence have capsized traditional principles for banking and finance.
Remember how financing life insurance policies had a ten-year run before radical changes were made to actuarial forecasts, and government and insurance carrier restrictions curtailed the opportunity? Remember when check cashing was a darling consumer finance product in the 1980s and 1990s? Remember how payday lending had popular marketplace acceptance? What happened? These enterprises became controversial and in turn, scrutinized by “public interest” advocates. Then the government clamped down.
Today unsecured financing is now being transacted with short-term deals, creative merchant cash advances and credit card receivables financing. As these financing models have matured, they have earned status and have become more sophisticated, thus, disrupting the factoring and ABL business. All forms of competition in finance recognize the following: The use of online applications, the necessity of making a decision within several hours and providing funds from $5,000 to $100,000 within three or four days. A short-term turnaround loan for say, $100,000 a month, can be done right off of a client’s bank statements. People are willing to pay a higher price to obtain money with high speed and efficiency.
The likes of Lendio, Biz2Credit, Lending Club, along with financing and capital-raising prototypes such as Kickstarter, are some examples of market players who continue to challenge convention and make inroads in the financing world. What are the consequences of these relatively new funding sources and how long will they be in vogue before they fade or become irrelevant?
As the soldiers of finance we must all undertake introspection: What is the market opportunity? What are the new ways to reach new clients? How do we use technology to interface with them? How do lenders create new algorithms? As lenders and financiers, we must continuously reinvent ourselves. What are the economic circumstances surrounding a deal? What are the risks? What are the product structures? Lastly, consider that among esoteric asset classes, everything is now “on the table.”
Many specialty lending platforms are showing up on emerging financing levels. Everyone is looking for different ways to deploy money. The lending network must address how all of these subdivisions are changing and our money must be in motion all the time in order for us to profit and win. Do you know the next big investment opportunity? Where is it? When is it? Be prepared.