Mezzanine debt, also called mezzanine financing, is a type of financing that got its name due to the fact that it’s a debt-equity hybrid.
Mezzanine financing gives the lender the ability to convert to an equity interest in the company in the case of a default, which makes it a frequent option during acquisitions and buyouts.
While as a type of debt it has the highest risk, high mezzanine loan interest rates also offer the highest potential returns for lenders, though with flexible repayment terms for borrowers.
Is a mezzanine loan debt or equity?
Mezzanine loans are a hybrid of both debt and equity, which can make them a bit a difficult at first to understand.
The best way to understand them is that they’re a form of debt financing that has equity options built in, which allows it to take on the form of an equity investment if those options are exercised.
Mezzanine debt isn’t commonly used, as roughly only about 10% of debt is mezzanine debt, and therefore it’s often considered lower priority than senior debts. However, its unique qualities make it a useful option in the right situation.
How does Mezzanine debt work?
Mezzanine debt creates a new level of flexibility for borrowers and lenders that otherwise wouldn’t be possible.
Mezzanine lending is often sought-after as an aid to companies with specific acquisition goals. Mezzanine lenders also tend to be long-time investors in the company, making them a trusted partner to make those projects a reality.
Mezzanine loans often have a few unique qualities, including:
As opposed to traditional bank loans, mezzanine loans typically have a higher return than senior debt and are often unsecured
Mezzanine debt is subordinate to senior debt but higher priority than pure equity
There is no principle amortization
A portion of the return on a mezzanine loan is fixed, differing from pure equity
Explaining mezzanine financing can be a bit confusing even with a thorough explanation, so let’s look at an example.
Mezzanine financing: Example
Bill is looking to purchase a company worth $10 million, so he goes to a lender he’s hoping will finance the purchase.
Bill isn’t approved for the full amount, but he gets $5 million toward the purchase. To bridge the gap and get the remainder of the financing he needs to make the purchase, he looks to get mezzanine financing.
He acquires mezzanine financing for $4 million, making his direct investment just $1. That breaks down to:
$5 million basic loan
$4 million mezzanine loan
$1 personal investment
On the repayment side, the mezzanine lender then charges a 16% interest rate as opposed to just 6% with the bank loan. However, as opposed to paying interest charges monthly or annually, Bill has the option to add those charges to the cost of his loan, giving him added flexibility.
Pros and Cons of mezzanine debt financing
With a more thorough explanation of what mezzanine debt is, let’s talk about why you might want to consider using mezzanine debt as well as the drawbacks of doing so.
Mezzanine financing has the unique ability to offer lenders a way of obtaining equity in a business, something no other type of debt financing can do. It can have a considerable impact on a lender’s rate-of-return in some cases.
However, it’s not without its cons for both lenders and borrowers. Here’s a breakdown of both the pros and cons of mezzanine debt for lenders as well as borrowers:
Pros and Cons for borrowers
The greatest pros exist in what mezzanine financing can do for borrowers. However, mezzanine loans offer their own cons as well.
Pro: Leverage
A mezzanine loan offers borrowers financing they otherwise wouldn’t have been able to acquire, giving them more purchasing power and the ability to earn a higher return on equity optimal cases.
Pro: Looks better on your balance sheet
Because mezzanine financing often appears as equity on a company’s balance sheet, it makes your debt level appear lower than it is, making it easier for you to qualify for financing.
Pro: Tax-deductible interest
Interest payments on a mezzanine loan are typically tax-deductible, which can account for a large amount of savings over the course of a year.
Pro: Flexible repayment options
Repayment options with mezzanine debt are often highly flexible, with the ability to add interest charges to your loan’s balance or even pay those charges with cash.
Con: Using a mezzanine loan for purchasing leverage is risky
While mezzanine loans have unique benefits for borrowers, they also come with their own set of cons. The primary con of mezzanine loans doesn’t inherently exist in the loan itself but in the way they’re typically used.
Using a mezzanine loan for purchasing leverage comes with a high level of risk. There’s no guarantee the company is going to be a success, or even break even on your investment, so that loan may become a significant debt.
Con: Equity interest
If you as the borrower default on a mezzanine loan, you could be required to provide equity interests to lenders.
Pros and Cons for lenders
The pros and cons of mezzanine loans for lenders are more direct and typical as they relate to lending, but they’re significant nonetheless.
Pro: Equity benefits
There are just a few pros of mezzanine lending, but they’re significant.
First, lenders can potentially gain equity, giving them the ability to take advantage of the growth of a business and the resulting equity.
Pro: Interest income
Another pro is that mezzanine loans typically have very high interest rates, which gives mezzanine financing a high potential return.
Con: Subordinate debt
Because mezzanine debt is considered subordinate to pure debt, a mezzanine debt from a lender may not be secured by any hard collateral.
If a business defaults, by the time all senior debt is paid, there may be no more collateral or cash-equivalent to pay repay the loan.
A unique type of financing
Mezzanine financing is entirely unique among the wide-ranging collection of business financing solutions.
It serves an important role that other financing vehicles can’t fill, making it a useful tool for both lenders and borrowers.
Are you a lender considering using Decision Logic?
A potential borrower whose prospective lender is requesting a bank verification through Decision Logic’s automated system and you’re wary of what it is, how it works, and whether it’s secure?
We know bank verifications sound odd at first sight– but this technology is the only way to verify bank statements instantly and securely.
In short, the Decision logic is the most secure bank verification technology created to date.
Read on to find out more about Decision Logic, why it originated, who developed it, and how it works.
After reading, we hope you have a clearer understanding of the importance of the Decision Logic software in creating a safer lending environment within the U.S.’ post-subprime crisis economy.
Why do lenders use Decision Logic?
Decision Logic was developed by CEO Carl Fredericks– former Vice President of an IBM partner and account manager for several governments, industrial, and financial institutions– and CTO and President David Evans– who has over 25 years as a Chief Technology Officer and experience as a Scientific Adviser to the UK Government among other roles.
The Decision Logic software was developed to be an advanced bank verification system that would enable lenders to instantly verify financial information in the battle against fraudulent bank statements which has been a growing concern and becoming more prevalent in the business lending space.
It was designed in the wake of the 2008 financial crisis caused in part by a loosening in upholding qualification standards for the approval of home mortgages where many applicants were submitting altered statements to get approvals for mortgages they were not qualified for.
Without adequate technology to verify if the banking information placed down during the qualification process was valid or not, many received mortgages beyond their financial capability.
As a result, families were left paying for a mortgage they couldn’t afford and ultimately lost their homes in the housing bubble that resulted from it. As the evolution of the financial technology markets spread to the business side of things. Decision logic has become the standard for bank verifications.
For lenders, Decision Logic gives them a way of quickly and easily verifying qualifying bank information that helps them make a smart decision about who they lend to, a practice that helps not only the lender but the borrower as it keeps them from taking on a loan they can’t afford.
And so, Decision Logic doesn’t just help prevent fraud but improve industry standards throughout the fintech industry.
Is Decision Logic a scam?
It’s natural– and healthy– to be wary of any service that asks for your banking information. Especially in the days of mass data breaches and other technology-related scams.
After all, in the information age, information itself is valuable and can be misused.
However, it’s an occasional misconception by some aspiring borrowers that Decision Logic itself is a scam designed to steal your banking information.
In fact, that couldn’t be further from the truth.
Decision Logic today works with over 21,000 financial institutions and is a trusted entity that helps make the lending process easier for both borrowers and lenders.
According to Decision Logic’s documentation:
“We have partnered with the leading credit and financial data providers around the world to offer a unique Data Provider Aggregation Environment. DecisionLogic has harnessed the latest technologies of these data providers and brought to the market a solution that is innovative, easy to use, efficient, and secure.”
For many lenders, Decision Logic is a trusted partner that helps them, and the borrower, proceed through the approval process faster and with less hassle.
How Decision Logic works
So, how does the Decision Logic service work?
If you’re in the process of applying for a business line of credit or loan, you might be wondering what exactly the service will do in accessing and retrieving your information.
If you’re a lender, you might be wondering exactly how you can use Decision Logic to streamline the information retrieval process.
Here’s a breakdown of each step:
Step 1: Send a link
Before closing a business loan or advance application, the lender sends a custom Decision Logic link via either text SMS message or email which the applicant/business owner accesses.
Step 2: Customer opts-in
Next, the applicant inputs their banking information. Keep in mind that this link can only be used once, so as soon as the link is used it can’t be accessed again.
Step 3: Opt-in successful
Once the information has been inputted, the opt-in is successful and the verification process is complete.
The customer will then receive a success notification and is redirected to the lender’s website automatically.
Keep in mind, as a further security measure, if the applicant does not input their information within a certain period of time, that link is voided and will no longer work.
In addition to that, only underwriters will have access to the data– and strictly date-to-date business statements– not Decision Logic or the lender.
Step 4: View bank statement
Now, the lender has access to the applicant’s bank statements which they can review for authentication purposes. This also allows the lender to connect via API and helps expedite the funding process.
The statement the lender receives is a read-only version of the applicant’s business bank statements, solely for the purpose of helping determine approval.
And that’s all there is to it! The entire process is started and completed in as little as a matter of minutes.
Does Decision Logic store access to your banking information?
This is a common question from potential borrowers as they move through the application process.
This simple answer is:
Decision logic does not keep your login credentials on file.
Its technology allows a lender to retrieve the last 12 months of banking activity and as well as for them to cross-reference the data received when applying for the loan to avoid deals being funded with doctored statements.
It also allows the financial institution to view your current months’ activity to prevent prospective borrows from double funding– i.e. taking two loans from different lenders at the same time and effectively over-leveraging themselves and becoming at risk for default as a result.
Decision Logic review: A quick look
If you’re a lender, should you use Decision Logic? What are the benefits? And are there any other services like Decision Logic?
As there’s nothing on the market like Decision Logic, given that they’re the originators of the technology which is still in its infancy,
It’s hard to run a comprehensive review, as with Decision Logic being the originators of the technology, there aren’t many yet offering a similar service.
“Built for brokers and lenders” as it states on Decision Logic’s service page, their flagship product offers 90 days of transaction history, the defining feature of this version of the Decision Logic service.
However, for those lenders who want to be able to pull more data…
DecisionLogic 365 is Decision Logic’s premium version, offering all the same features of DecisionLogic 90 including training, integration, and 24/7 tech support, but with one big upgrade: you get 365 days of transaction history.
This version of Decision Logic has a bigger price tag, though with 4x the data, it’s to be expected.
3. Finicity’s Financial Data Services
Finicity is another option to consider if you need a solution that will provide you with as much financial data as possible while streamlining the qualification process for your clients.
As opposed to a single product offering, Finicity is a data aggregator that has the ability to do many things in terms of acquiring financial data securely.
However, most notably, with Finicity’s Account History Aggregation, you get 180 days of transaction history, with the ability to get up to 24 months of transaction history as a one time pull, twice as much as DecisionLogic 365.
Similar to Decision Logic’s 90 and 365 services, this includes insights such as:
Income deposits
Expense categorization
Transaction descriptions
Account and loan balances
In addition to this, just as Decision Logic’s services, Finicity’s financial data services also include the ability to verify identity and account information, making it a comparable match to Decision Logic’s pioneering service.
Give the best to your clients and customers
As a lender, you want to make the application and qualification process as easy and painless for your prospective customers as possible.
After all, who likes filling out a ton of paperwork, running to the nearby printer, scanning, then emailing copies?
Decision Logic is a cutting-edge, secure technology that takes the hassle of locating and sending off your business bank statements away and replaces it with a simple and easy solution that takes just minutes to complete.
If you want to streamline your application process and erase the hassle of gathering and sending bank statements for your customers, an automated financial statement service such as Decision Logic can help do exactly that.
Want to know how write a business plan? Not sure what needs to go in each section or how long it should be? Read on to find out.
How to Write a Business Plan
Every small business has a beginning. It’s an exciting time with a lot to look forward to.
But the launch of every small business is not created equal.
If you want to make sure your business gets started off on the right foot, you need to make sure that launch includes a critical element: a well-crafted business plan.
Creating a business plan is an integral part of starting a business. It’s an A-to-Z guide to running your business the way you want (and need, for it to be successful).
That’s why in this guide, we’ll show you everything you need to know about writing a business plan, including:
What is a business plan?
The 8 steps to writing your business plan
How long should a business plan be?
Business plan examples
So, let’s start with the obvious question:
What Is a Business Plan?
A business plan is a guide of sorts, both for you and those interested in your business (i.e. potential investors), that lays out your plan for growing and developing your business.
It tells the story of who you are as a company, what your goals are, and how you’re going to get there. And it does all that while being as thorough as possible.
Goals should have dates, a detailed marketing plan to back that up.
A product strategy that makes it clear why you’re selling what you’re selling and how you’re going to make it better.
And, finally, a financial plan that shows how you’re going to manage all that money your business is going to be making.
If there is any part of running a business that you’re unfamiliar with, this will be the point that you’ll want to start doing some research, as you’ll need a basic grasp of everything from marketing, product development, financials, and your organizational structure to create a good business plan.
What Needs to Be In a Business Plan? 8 Steps to Writing a Business Plan
Now that we’ve got that out of the way, what are you supposed to put into your business plan?
There are 8 things every good business plan should have.
They are:
Executive summary
Company overview
Market analysis
Organizational structure
Product strategy
Marketing strategy
Financial plan
Appendix
With a thorough description of each of these areas, you’ll have a detailed business plan in place that should not only guide you in your business’ development but make you look good with investors.
How to Write a Business Plan: A Step-by-Step Guide
Creating a business plan can seem a bit overwhelming when you consider everything that goes into one.
But if you take it one part at a time, you’ll find the plan coming together before you know it.
Now, let’s jump into those 8 steps we just talked about and do just that: break each part down into easy steps to follow.
And remember: If you’re unsure of anything right now, just write down what you do know about each section. Later, you can come back and flesh that section out.
With that said, here are the 8 parts of every business plan:
1. Write an executive summary
First, you’ll want to write your executive summary.
An executive summary is a summary of where your business is now and where you want it to go. If you’re trying to interest investors, this is also a good place to add a little bit about what makes you stand out as a company and why your company is going to be a success.
How long should it page? About a page is fine, though it could be longer.
If that feels impossible, consider that your executive summary is exactly that: a summary. It’s not a thorough breakdown.
Think of your executive summary as the prelude to the rest of your business plan. Later, you’ll go more into your product, marketing, positioning, and financials. For now, just give them an effective and concise summary of the most important parts.
What are those? The SBA recommends the executive summary of a business plan includes these 6 pieces of information:
Mission statement: Describe your business and its goals in a paragraph.
General company information: This includes the date of your company’s formation, the owners/founders, their roles, and how many employees you have.
Highlight successes: Place any notable data (in visual form such as a graph) regarding the growth of your business. Remember, your business plan should impress potential investors (unless you’re solely doing it for your own use, in which case this can be skipped), so you’ll want to offer something that signals you’re bound for success if you have it or other positive notes about why you’ll be successful if you don’t have that.
Products and/or services: Describe your product or service and your market.
Financials: This section is important if you’re looking for investors as you’ll list your funding goals as well as anyone you’ve already worked with in the past to secure funding.
Plans and goals: What are your goals for the future. The last part of your executive summary should mention what those goals or plans are.
This first section might seem like a doozy, but keep in mind that it’s arguably the most important section of your business plan because it summarizes everything that will come after it.
The great part about starting with this too is that it will help give you a better idea of what you’re going to put in each of the proceeding sections, making the rest of the business plan go smoothly.
2. Complete your company overview
Next is your company overview. Consider this the basic information that those interested in your business will need to know about how you function.
That includes:
What does your business do? You spent a lot of time selling your business in the previous section, now you need to make it crystal clear what your business does.
Your market: Who do you sell to? What is the need you’re serving? How are you serving that need?
Your business type (legal structure): Explain what business structure you are and why you’ve decided to choose that structure. Also, list how ownership is divided and managed.
Make sure your answers to these points are to the point. This is an overview, like the last section, so you don’t have to spill all the details (not until later).
However, you also want to make sure it paints an attractive view of your company if you’re preparing this to acquire funding.
3. Do a market analysis
Next on the list is a market analysis. This is an analysis of your industry, your competitors, and any other important information relative to your market.
Now is when we move from concise overviews to more detailed breakdowns of the major areas of a business, so you’re going to want to make sure to get into the nitty-gritty here and show that you understand the market you’re stepping into.
And if you’re just doing this for your own use, it’s a great exercise it making sure you know enough about your industry and market as a whole.
Make sure to include this information in your market analysis:
Industry summary: List the basic information about your industry: its size, growth, current health, and any data connected to it related to trends or anything else.
Target market demographics: Now focus in on your target market: who specifically are you selling to? Beyond that, you’ll want to talk about who your customers are, where they’re located, and any other information relative to demographics.
Target market size: How big is your target? How fast is it growing? These are also questions you’ll want to answer in this section.
Target market behavior: Where does your target market make purchases? When do they buy? List anything related to your market’s behavior.
Market share: How much market share do you predict being able to capture?
Pricing tolerance: You’ll also want to know everything you can about what you can and should be pricing your product at.
Market entry conditions: What barriers are there to entering your target market? You need to be aware of these before jumping in, whether it’s licensing, regulations, expertise in personnel, etc.
Competitors: Who are your competitors? What makes them stand out? How will you be better than them and/or stand apart? What are their strengths and weaknesses?
As you might be able to tell already, this is possibly the most research-intensive part of the entire business plan.
However, having said that, the research you’ll be doing to complete this section is invaluable, even necessary, to your business’ success.
Leave out even one of the above sections and you’ll be flying in dark without all the information you’ll need to make smart decisions as your business grows and is presented with challenges.
4. Define your organizational structure
Moving on from your market analysis, the next deep-dive is into your organizational structure.
This section is all about defining what kind of system your business uses to manage itself.
Who does what? Who reports to who? How do your teams break up? These are just some of the questions you’ll want to answer.
Here’s everything you’ll need to define:
Organizational structure: Create a visual document/chart of some kind that shows how your business is structured, including who has what role and who is in charge of managing what part of the business.
Ownership: If you have partners, how does ownership break down? Who is responsible for what?
Backgrounds: Detail the backgrounds of all notable team members including partners, managers, and your board of directors. This section can be quite long, and that’s okay. Make sure not to leave anyone out.
Future hires: How does your team need to expand in the future? What key roles do you need to fill on the way to accomplishing your goals?
5. Define your product strategy
Now let’s move on to your product strategy. This mostly has to do with product development and the research involved in positioning your product within your market.
Here’s everything to include in this section:
A general overview of the product and/or service: What product or service(s) do you offer? What need does it fill in your market for your target customer?
Product development stage: Is your product complete and ready to ship? Have you sold units/acquired customers already? Is it just in the ideation stage? If it’s the latter, describe what you’ll be doing to complete the product or service offering to have it ready to ship.
Patents / Intellectual property: If your product or service depends upon a patent or some kind of intellectual property, explain what where they stand.
Sourcing and fulfillment: Who is making the product? Where are you shipping it from? Make sure this is clear to you now there are no problems down the line when it’s time to start selling.
Remember that as you craft this section, like all the other sections, you want to show that you know what you’re talking to if you’re preparing your business plan for potential investors.
Make your product, service, or idea look good and explain why you believe it will be successful.
6. Define your marketing strategy
Next, with your market and product sections complete, you’re well-prepared to move on to defining your marketing strategy.
In this section, include any and all relevant information related to how you’re going to market your product or service.
This includes:
Advertising and promotion: How will you market your product or service? This section is likely to be on the longer end as you should be detailing not just how but why.
Positioning: How will you be positioning your product or service? What is your reasoning supporting this decision?
Sales strategy: How will your sales team function? Will you have one at all? How will they work with marketing? At what stage will they begin interacting with the customer and what kind of overall sales process will be implemented?
Validation markers: You should have several hypothesis or tests in place to validate your offering, it’s positioning, and marketing and sales efforts. Without these things in place, there’s no way to know if your product or service is a success or failure and no reference point to come back to to make improvements.
This is one of the main sections you may yet have quite a few question marks on. As we mentioned earlier, don’t worry. Just do your best to fill out as much of this section as possible, do the necessary research, then come back and finish it later if necessary.
7. Write your financial plan
The final step in terms of the written information you need to provide for your business plan, it’s time to dive into the financial side of things.
How much does your product cost to source? How much are you selling it for? How many units can you move in a month? What is your overhead and other costs? These are just some of the questions you’ll want to answer.
If your business has been around for a bit, the best place to start is your current financial reports. Things like your profit and loss report, income and revenue statements, accounts receivable and payable, and any other financial reports.
And if you don’t have anything, create something that shows projections for important financial figures such as sales and revenue. Just make sure you’re not making numbers up out of thin air. Support these projections with market and competitor research.
These are some of the documents you can include relevant to projecting future financials:
Cash flow forecast
Projected income
Capital expenditure budget
If including projections, make sure to include them for the next 12-month period as well as either 3 or 5 years at least for a more long-term view.
With those projections out of the way, you’ll also want to include a section on funding. If you’re looking to acquire investors or will be investing a portion of your own funds, here is where you’ll outline exactly what you’ll need.
Make sure to include:
How much funding you’ll need to get started
Projected future funding needs
And what those funds will be used for
After reading this section of your business plan, an investor should come away with a clear understanding of why you need funding and what acquiring that funding will allow you to do for the business.
8. Include an appendix
The final step in good a business plan is less new information as it is the place where you stuff all those things that are important but might not have fit anywhere else: an appendix.
In this appendix, you’ll want to stash any and all important data or other supporting information you didn’t include throughout your plan already.
That includes additional:
Data: Charts, graphs, you name it.
Details: Anything relevant to your business that may not have fit anywhere else.
Legal documents
Additional images: If you’re a restaurant, additional menu item images, you get the idea.
Resumes: If your plan may have been lacking in supporting data or you simply think it will help, you can include your resume and the resume of any of your founders or key managers as a supporting document.
Anything that you feel is important or valuable but just didn’t quite fit in the plan should go here. And since it’s a gathering of somewhat random items, make sure to include a table of contents to make this section easier to navigate.
How long should a business plan be?
At this point, one of the questions you might be left with is: exactly how long does my business plan need to be?
Fortunately, that’s an easy question to answer:
As long as it needs to be to succinctly outline or define each major aspect of your business.
The SBA suggests a business plan be no more than 50 pages. However, that all depends whether you’ll have investors reviewing that plan or not. If it’s just for your own personal use, even a few pages can suffice.
Your marketing plan might be a few detailed paragraphs. Then again, it might be a bit more involved and require several pages.
Ultimately how long each section will be will depend on what you need to say and your ability to break down that information as succinctly as possible (without leaving out any vital information).
Business plan examples: What does a business plan look like?
Now that you know how to write a business plan, let’s go over some business plan samples.
We know that was a lot of steps, and it might not be entirely clear what your business plan should look like, so we’ve gathered some great samples as additional resources that you can review to get a better idea of what your business can look like.
Keep in mind that if you use any kind of software that allows you to put together a business plan, such as:
then you won’t need to worry about looking over samples as they will guide you through the process. Still, it can be nice to see an example to make sure you’re creating your business plan right.
With that said, here are a few business plan examples to help you get a better idea of how your completed plan should look:
For the most part, business plans are the same across industries, with only small differences.
Keep in mind that once your business plan is complete, take some time to show it to everyone from your business partners to key personnel to get their feedback.
The more eyes who are directly connected to your company’s goings-on who look at it, the better it will be and the more buy-in you’ll be able to get right from the get-go in terms of your company mission and direction of each major moving part.
Get the Startup Capital Your Business Needs with Excel Capital
Now you know how to write a proper business plan, there’s only one thing left to do: create it.
Take the steps we’ve broken down here and start writing a business plan of your own one step at a time, making sure that each section is as comprehensive as possible.
After all, this is going to serve as a guidebook of sorts that will help direct your entire business’ dealings for years to come, so it’s worth taking some time to make it right.
Getting things right is also important with regards to funding.
With the right funding in hand, you can grow and establish your business faster and keep things running smoothly.
At Excel Capital, we offer a variety of business funding tools, many which you can be approved on with low or no credit and fund in as little as 24-48 hours.
Apply to get the funding your business needs with Excel Capital today:
Get the capital your business needs without the hassle. Apply for a small business loan with Excel Capital: Apply Now
Bizfi: The Rise (and Fall) of a Fintech Trailblazer
The year was 2005.
A brand-new company– Merchant Cash and Capital (MCC), later known as Bizfi– was shaking up both the financial and technology industries in the United States with a revolutionary new approach to conducting business (especially online).
The mission for Merchant Cash and Capital was simple and straightforward in these early days. MCC would act as a purchaser of future credit card sales, a brand-new concept in 2005 and a move that laid down the foundation for the future financial technology movement of today.
Growing rapidly in the first five years of its existence, Merchant Cash and Capital founder Stephen Sheinbaum decided to establish a secondary operation– Next Level Funding– that acted as a broker for small business owners and entrepreneurs that were having a tough time getting financing in the middle of the Great Recession.
Next Level Funding was going to help drive business to Bizfi, still then Merchant Cash and Capital, and accelerate the growth of their unsecured business loans through direct calling or telemarketing and other online sales channels.
The fintech movement takes off
At this stage in the early history of the fintech movement, online businesses were beginning to take off, opening up a world of opportunity for entrepreneurial endeavors that simply hadn’t existed before.
Shopping online had finally “gone mainstream” and people were familiar with– and maybe more importantly comfortable with– sending their personal, private, and payment information to strangers over the internet.
On the flip side of things, traditional lenders and business owners were anything but familiar with these online enterprises.
They remembered the Dot Com Bubble of the 1990s– and the way it blew up in many business owner’s faces– and looked more than a little bit skeptically at what people were calling the true power of the Internet and how it might revolutionize business forever.
Combine that with the fact that the Great Recession was in full swing (peaking in 2008, three years after Merchant Cash and Capital was founded) and traditional businesses were folding left and right and creditors were finding more people defaulting on their loans than ever before, and it’s easy to see why a company like Merchant Cash and Capital was able to swing in on a chandelier and start gobbling up market share.
Bizfi is formed
It took 10 years of rapid expansion to decide that it was time to bring both Merchant Cash and Capital and Next Level Funding under the same roof, operating them as a new single entity.
Under the leadership of founder Stephen Sheinbaum, the organization was restructured and reorganized, offices were consolidated, and the workforce was brought under a single roof. And, at the same time, there was rapid expansion.
Ten years from MCC’s founding, 2015 saw Merchant Cash and Capital and Next Level Funding merge under the same roof of the Bizfi moniker.
And, as it would have it, success for the company formally known as Merchant Cash and Capital came very, very easy.
By the time 2016 rolled around even the most old-school and traditional of lenders recognized just how powerful, important, and influential the fintech industry was going to be.
Bizfi had a huge head start on the rest of the pack, as according to industry reports they were one of the largest originators of merchant cash advance packages in existence at the time.
And then, just like that… the company disappeared almost completely.
What drove Bizfi out of business?
Within less than a year of the time that it seemed inevitable they would take their place as a top player in a quickly growing industry, Bizfi was out of business.
Journalists that had been following the meteoric rise were stunned. Industry experts couldn’t figure out what had happened and even those that had been working with Bizfi were shocked to learn that they were going to be shuttering their doors forever just when things looked like they were poised to take off like a rocket.
A postmortem is still being conducted on the company formerly known as Bizfi, partly due to the fact that it didn’t cease operations until late 2017, and much of what happened during the period between 2016 and 2017 that could have changed the company’s fate so drastically remains unclear.
One thing, however, is certain: Between 2016 and early 2017, Bizfi had grown too large far too quickly and that led to several factors that would eventually spiral out of control.
Several factors likely contributed to driving Bizfi out of business, but there were primary red flags among those factors.
Here are some of the primary factors that led to Bizfi going out of business:
They hired too many too quickly that did not have enough underwriting experience
Prioritizing closing deals, Bizfi hired quickly but not effectively, choosing to hire many who didn’t have enough underwriting experience. This led to a cascade of negative effects.
First, underwriting managers were incentivized to fund as many deals as possible.
That might sound obvious, but they were encouraged to close deals to cover up their default percentage even if the deal didn’t make sense business-wise.
As a result, they funded too many large deals with too high a risk.
They funded deals for brokerages, also known as ISO shops, that shouldn’t have been funded, especially considering the size of the deal.
They lent heavily to young businesses
Bizfi was known at the time for offering entrepreneurs that only had six months of business experience under their belt and monthly revenues of at least $15,000 highly favorable financial packages that likely didn’t befit their financial or business standing.
They found many new entrepreneurs who wanted to take advantage of their services, but those same deals quickly ran their businesses into the ground.
After all, nearly 75% of all new businesses will eventually fail. Lending to such young businesses large cash sums was unheard of due to the risk, and unfortunately, Bizfi became a reason why that’s the case.
They lent heavily in high-risk industries
Similarly, Bizfi also became a popular financing option with some of the riskier industries in the entrepreneurial world:
Brick-and-mortar retail shops
Restaurants and bars
Health and fitness centers
And business service operations
These together made up the bulk of the Bizfi clientele, though each of those industries is considered high risk, high turnover, and has a high likelihood of failure in the first five years (SBA).
Eventually, Bizfi was sending more money out the door than they were bringing in, even though the bulk of their loans were short-term with sky-high interest rates.
Compared to traditional lenders with 10% APR packages, Bizfi routinely offered loans that carried an APR of 150% or more– interest rates that most entrepreneurs found next to impossible to meet with any real consistency or regularity.
Eventually, Bizfi began searching for outside investment, especially as the business markets started to cool across the globe. Institutional interest in the fintech industry continued to remain strong, but many of these larger operations had little to no interest investing in a company as overextended as Bizfi had become.
And by July of 2017, the Bizfi party was officially declared over.
Bizfi closes its doors
In July of 2017, according to sources close to the company, all remaining employees were given a 90-day notice that the company was to cease operations and terminate their employment.
It was the culmination of a series of layoffs, this the largest at more than 200 layoffs– many of which had been original employees at Merchant Cash and Capital or Next Level Funding.
In a CNBC interview in 2015, Bizfi founder Stephen Sheinbaum said that they had hopes of securing an equity investment that would allow them to go public by the following year in 2017. However, that investment never became a reality.
July 2017: Bizfi sells its marketplace and other assets to World Business Lenders
Following the wave of layoffs, the assets held by Bizfi were divvied up and sold off, with many of them purchased at deeply discounted prices by World Business Lenders or WBL (formerly one of the top competitors for Bizfi in the fintech space).
According to Bizfi founder Stephen Sheinbaum, who joined WBL as a managing director in July of 2017, WBL purchased the Bizfi brand, marketplace and other pieces of the company.
August 2017: Bizfi sells its portfolio to Credibly
One month later, in a separate deal, Bizfi sold the servicing rights to its $250 million dollar portfolio and 5,200 merchants to another fellow competitor, Credibly.
“Acquiring the servicing rights of BizFi’s portfolio is a testament to our data-driven approach and laser focus on the working capital needs of small businesses,” Credibly founder and Co-CEO Ryan Rosett said in a press release. “We welcome our new customers and are committed to ensuring that their growth capital needs are met.”
According to a Bloomberg report, the deal allows Credibly to offer additional capital to that existing 5,200 customer base.
