The non-bank lending industry has exploded over the past two years, and as the field gets bigger, it’s seeing a lot of change. Some of those changes are beneficial to businesses looking to borrow. Others are making access to capital harder to come by. We asked CapFusion Founder Ryan Sullivan to share his observations on the state of the industry during this period of unprecedented growth and change.
What are the biggest challenges facing businesses looking for non-traditional funding right now?
RS: The industry really only came into existence in the late 2000s in the wake of the financial crisis, when more stringent regulations made it harder and harder for business owners to get bank loans. As with any new industry, things were pretty wide open when online lenders like CapFusion got started. So a business that didn’t qualify for a bank loan had a good chance of connecting with a non-traditional lender with a product that met their needs.
That’s really started to changed over the past couple years. We’re starting to see more and more online lenders enforcing stricter and stricter qualifications. That means that a lot of online lenders aren’t solving the problem that the industry was created to address — namely that banks required businesses to have qualifications that were really difficult to meet. Unfortunately, a lot of business owners that were getting turned down by banks for loans are getting turned down by non-traditional lenders as well, now.
That’s one of the reasons we’ve put so much of a focus on flexibility. We really want to be able to find a way to help everyone who comes to us find a loan that meets their needs.
What does that flexibility look like for CapFusion clients?
RS: Well, for most companies in the space today, there is a set product. A business applies for a loan. If they meet the qualifications — which, again, are getting stricter — they have the option of getting a certain amount of funding at a set rate and with a set payment period. The problem is, those terms may not be in the best interest of the business that’s borrowing or the lender. We’ve got a standard loan product, as well, but we have also developed several non-standard options that allow us to find the best payment plan for the business owner. When the business owner has a loan product that fits their situation, they’re able to stick to their repayment schedule, which is good for us. We think being flexible just makes more sense.
Can you give me an example?
RS: Sure. Let’s take a company that leases equipment of some kind as an example — maybe medical equipment. The business owner has been getting demand from the hospital it serves for a new kind of respiratory therapy machine. The business owner knows that once he gets the machine operational and worked into the leasing schedule, it will start generating new revenue for his company. But he also knows that it’s going to take a couple of months of training for his staff and the hospital staff before the new equipment can be worked into the mix.
Instead of sticking the business owner with a payment schedule that requires the highest payments right away, before the equipment is generating any revenue for the company, we work out a repayment plan where the payments start out very low, and then get higher once the equipment is contributing positive cash flow. A loan like that fits much better into the business owner’s finances.
Do you all anticipate you’ll have to curtail that flexibility at any point, as others in the industry have done?
RS: It’s certainly not part of our plans. With every decision we make about CapFusion, we ask ourselves if we’re helping businesses get access to the capital they need to grow. That’s our goal as a company, and we think being flexible is key to meeting that goal.