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  • Specialty Finance 2.0

    <img src="http://dailyfunder.com/springfieldboston.jpg" align="right" style="float:right;width:35%;">Once a cottage industry, Specialty Finance seems to have been born out of the unwinding of the financial markets of 2008. We are now at the point that Specialty Finance has evolved into another stage. I call that stage SF2.0 as in, Specialty Finance, the next generation.

    It’s been a solid five years since regulated financial institutions experienced capital flight from investors. The landscape in which these companies operate has fundamentally changed. Having to manage declining and depressed asset values as well as mange the associated negative impact on earnings and required capital levels has fundamentally changed the landscape in which these companies operate. Add the increased state and federal oversight that ensued and you can clearly see the difference in the lending practices that has resulted over these few short years.

    From this environment, Specialty Finance companies have emerged. The knowledge and experience these companies bring to the table in specific industries, along with their ability to offer innovative credit facilities and finance structures to meet the specific needs of the small to mid-sized business marketplace has certainly had an impact on the market. So what does SF2.0 look like these days?

    New Entrants
    Investors, participants, syndicators, funders, Sr. Debt Facilities, ISO’s are all looking to be involved in the SF2.0 marketplace today. With the promise of returns, new companies and risk takers fresh with capital to deploy are entering the industry looking to carve their piece of the SF2.0 pie, in some cases, ignoring lessons learned from a short five years ago. While regulation has not found its way into our marketplace yet, the Dodd-Frank legislation indicates regulatory oversight by various federal agencies should be a concern for all industry participants.

    The dozen or so companies that have been in our marketplace for the past five years know it takes more than just capital to run a successful company. It’s a about a disciplined approach to risk assessment, data management and systems, hiring and retaining great employees who can deliver outstanding service to sales partners, product mix, offering competitive commission structures and probably, a little bit of luck!

    Product Innovation
    The MCA has evolved into a stratification of both shorter-term and longer-term products. With the push of many funders to longer estimated terms as the environment for lower cost of capital exists. “Exists” is the key word here. As rates rise, and they will, there will only be a handful of companies assembled with capital structures that will be able to continue to play in the longer terms marketplace.

    Out of the MCA’s the true loan products and fixed ACH programs emerged to meet new SIC’s and tap into a whole new segment of the marketplace. While the data and risk profiles are relatively new to this side of the marketplace, industry participants are eagerly trying to acquire market share and grow their portfolios. It seems as SF2.0 matures, the industry is pushing to the middle market which traditionally sits below the Bank level financing but above the MCA level marketplace. Time will only tell if the Banks will jump back in to fight for this customer and market share. But that day isn’t today.

    Technology Enhancements
    With mature companies in our industry utilizing Big Data to drive their risk models and product development, main street finance is taking notice. It seems like a week doesn’t go by that I read of a company from our industry rolling out something to the marketplace where technology sits at the heart of the initiative. Maybe it’s just all hype and marketing but five years ago SF1.0 was under the radar, today SF2.0 is out there for everyone to see it. I guess that follows how everything is today, just more social period. At the company level, technology is driving the speed at which information is delivered and how that information is shared to sales partners. Portals, instant offers, auto approvals, texting results, the data is all being compiled quicker and in turn shrinking the time it takes to acquire a customer. Innovate or stagnate now applies in SF2.0 and will be the driving force of what SF3.0 will become.

    What’s next?
    The obvious answer is SF3.0, right? But what does that mean? Well that will take a bit more time to work its way into this marketplace, but with large technology overseas players like Wonga and the giant P2P Lending Club eyeing the B2B space let alone the fact that we have Google infusing capital and expertise - technology will surely be at the forefront of the evolution in this industry. Things move fast in this marketplace, but ISO’s/ISC’s move and adapt just as fast. Perhaps some fall out. Surely some industry consolidation may take place. Make no doubt about it though, specialty financing will remain current and mainstream.


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    Article by: John D'Amico, Managing Director of GRP Funding

    About GRP Funding, LLC.
    Since its inception in 2007, GRP Funding, LLC has supported thousands of small to mid size private businesses and franchise concepts nationwide by filling the gap in traditional lending, bridge loans & leasing with its alternative product lines.

    For more information about GRP Funding, LLC. visit our web site at www.grpfunding.com or e-mail info@grpfunding.com.


    Publisher: DailyFunder
    Comments 1 Comment
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