Author Topic: Business loans  (Read 12226 times)

AnilG

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Re: Business loans
« Reply #15 on: December 22, 2014, 08:24:43 PM »
I will check out DS. I like DS approach of issuing the loan first and then putting up the loan on platform for others to fund. IMO, the quick turnaround will be more attractive to borrowers. But it seems Funding Circle may have better marketing outreach as FC keep coming in my discussions with clients.

Brandon Ross and I talked just after he started the fund, the entry fee was much lower at that time. The one thing I really liked about his approach was that even before he had 'real' performance history with actual fund, he shared the hypothetical performance of his strategy based on past data as well as his approach. Similar things I want to see from business loan platforms. Just don't tell me to 'trust you and your underwriting,' show me.

Great to see people diversifying. Can't go wrong with DS. Another good one would be Brendan Ross at Direct Lending, though I believe its a fund with minimal requirement of 100K to get in (and I think there is a waiting line).

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RazzleDazzle

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Re: Business loans
« Reply #16 on: December 22, 2014, 11:27:05 PM »
It's not a "would be", it IS attractive to borrowers. We employ similar model - pretty much we internally issue it and then retroactively raise funds online. Even if its not fully funded, it's fine as we always fund loans posted we have underwritten.

Agreed, at least a logical methodology of performance strategy should be delivered to investors. As stated before - "trust us, it's good" is not the way.


rawraw

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Re: Business loans
« Reply #17 on: December 23, 2014, 06:26:18 AM »
True but the same can be said for LC and Prosper consumer debt financing.
Yes of course, but the degree of risk in consumer financing is also lower.

Fred93

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Re: Business loans
« Reply #18 on: December 23, 2014, 07:13:13 AM »
No offense to Fred, but he has had success in a time of low levels of problem assets.  The real test to underwriting is how it performs in the down markets.

In the small business lending area, I don't claim "success".  ... Only that I'm in there trying out the offerings and learning.   I'm depending on and learning about the underwriting of FC and DS. 

rawraw

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Re: Business loans
« Reply #19 on: December 24, 2014, 10:01:35 AM »
No offense to Fred, but he has had success in a time of low levels of problem assets.  The real test to underwriting is how it performs in the down markets.

In the small business lending area, I don't claim "success".  ... Only that I'm in there trying out the offerings and learning.   I'm depending on and learning about the underwriting of FC and DS.
There are a few key things I'd personally pay attention to.  Cash flow is king -- not prospective cash flow like I've seen some on Peter's podcasts mention about their business loans, but current cash flow.  Also, covenants in the loan documents or frequency of financial updates.  The type of financial statements (personal, prepared, audited).  And of course, just the type of business loans.

If I was a BSD, one thing I'd personally request is that the underwriter subscribe to RMA and provide me the common size statement comparisons with associated default rates.  And even the underwriting guide by RMA.  This would be a good way to get the education necessary to know what ratios to expect and how to underwrite deals down to the industry code level.  This information is invaluable IMO to people who don't have those metrics in their head already due to experience.   Without information like this, I have a feeling even accredited investors will have a poor ability to have an independent opinion on the amount of risk they are taking.

RazzleDazzle

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Re: Business loans
« Reply #20 on: December 24, 2014, 11:53:11 AM »
well said, but most of the platforms have extensive private placement memorandum along with business information that is pretty readable. Still, I agree if one is trying to get retail investors vocabulary should be better explained such as DSCR etc

There is always a fine balance between information overload vs appropriate disclosure level. I believe business financials showing good positive CURRENT cash flow and historical cash flow is probably the best loan performance indicator. Still, atleast at our platform, we focus on business with real estate so we go beyond cash flow and secure it (lien) with real estate (mezzanine vs primary depending). In this situation, appraisal documents are essential.

This brings me to basic question: do we ever see any hard documents on LC or prosper besides FICO score (sure they verify income on some borrowers but they dont post tax returns etc)?

I believe in the future investors will get comfortable with industries they know on a similar style information as posted on LC and invest in business loans.
« Last Edit: December 24, 2014, 12:07:37 PM by RazzleDazzle »

RazzleDazzle

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Re: Business loans
« Reply #21 on: December 24, 2014, 11:59:33 AM »
forgot to mention, you are right, relying on future cash flow (I guess you can include upstart platform here etc) is risky and you have to just trust and be comfortable with ex-googlers and their risk modeling in this situation. (CS degree? np - you will get a degree and earn a ton?!)

rawraw

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Re: Business loans
« Reply #22 on: December 24, 2014, 01:59:24 PM »

There is always a fine balance between information overload vs appropriate disclosure level. I believe business financials showing good positive CURRENT cash flow and historical cash flow is probably the best loan performance indicator.
Yes, that is true.  Of all "business loans" I view real estate as one of the simplest in terms of the underwriting.  The RMA data wouldn't be as useful for real estate loans.  I was thinking more along of the loans of loans where the income is dependent on a specific business.  For example, even with a 1.25 DSCR ratio an oil/gas purpose loan is probably not doing so hot.  In real estate, that is what you want to see.  Even experienced underwriters on business loans spread financials against RMA data for this reason.

Mikebb

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Re: Business loans
« Reply #23 on: December 30, 2014, 12:58:27 PM »
Steve,

If you're an accredited investor and okay investing in a pooled fund, you may want to look into:
-Direct Lending Investments for small business loans (note: they do not have access to Lending Clubs Small Business loans)
-Echelon Capital Strategies (www.echelonfundlp.com). Ask for Blake and refer to their Diversified Fund.

RazzleDazzle

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Re: Business loans
« Reply #24 on: December 30, 2014, 11:31:45 PM »
 :) I see link dropping is done without a problem here.

There are many funds in this space now. Lendacademy investments anyone?

Issue is why pay funds ? Go straight to platforms and you can save that extra 1% they charge. Also these funds have a minimum of 50K or a 100K (probably the latter) given the investor interest.

Mikebb

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Re: Business loans
« Reply #25 on: January 12, 2015, 03:30:47 PM »
@ Razzle - Good point on LendAcademy Investments! Also, going direct to the platform is doable and could be more cost efficient, however, it may not be available and for those wanting to deploy large amounts of capital, the fund structure tends to be more attractive. You're certainly correct re: larger investments needed. Funding Circle and DealStruck look interesting for direct buying.



:) I see link dropping is done without a problem here.

There are many funds in this space now. Lendacademy investments anyone?

Issue is why pay funds ? Go straight to platforms and you can save that extra 1% they charge. Also these funds have a minimum of 50K or a 100K (probably the latter) given the investor interest.