The Devil is in the Detail – Different type of Marketplace and Peer to Peer lenders David Gustin - March 16, 2016 3:32 AM | Categories: Alternative Finance | Tags: Bluevine, CAN Capital, Fundbox, Merchant Cash Advance, RapidAdvance Different peer to peer and online lending models for small business are often thrown together but there are obvious differences between the segments. Take for example, merchant cash advances versus digital invoice finance vendors. Merchant Cash Advance Providers Merchant Cash Advances became popular back in the early 2000s as a way for small companies to access unsecured credit based on their credit card receivables. This was a great innovation, as a funder would underwrite future credit card receivables based on historical receivables and the funder was paid back from a percentage of days sales direct from the credit card processor. For example, a funder may lend $100K for the right to get $120K over the next 12 months by taking a small % of each days credit sales. This product became very popular with restaurants, small retailers, and others that rely on credit card sales. It acts like a daily amortized term loan which is an unsecured, but it is not a loan, but a purchase or advance on assets without a required amortization schedule and fixed maturity. Today, the product is very popular and in the last few years, has evolved into an ACH Product, which funds all revenue, not just credit card receivables. Here, the funder does not look at credit card cash flow but overall revenue. If a business has $1.2m in cash sales the funder will ACH debit for a certain percentage. Lenders are sometimes described as subprime small-business lenders, because they provide high-cost cash to firms that cannot qualify for bank loans. Capify, CAN Capital, RapidAdvance, and Credibly are some of the biggest players, as well as certain factoring organizations that have added this product to their portfolio. The large payment companies PayPal and Square offer similar products to merchants that use their networks. Online Invoice Finance Lenders Invoice finance lenders provide an online platform to add speed in financing unpaid invoices for small business. Their secret sauce is the algorithms they use to have visibility into invoice data, historical cash flows, obligors of invoices and many other variables to determine which invoices can be financed. Given they are an unsecured lender, they allow a small business to leverage their customer which may include Fortune 1000 (easier to finance) or if the obligor is generally unknown, leverage their own creditworthiness. BlueVine is a cloud-based platform for invoice financing, enabling small businesses to get paid on day one for invoices due in 15-90 days. Fundbox is a technology company based in San Francisco. Founded in 2013, the service uses big data analytics, engineering, and predictive modeling to help optimize cash flow for small businesses and freelancers with outstanding invoices. So how does an obligor or customer pay Bluevine when the invoice is due? Once approved on the platform, a business will receive a Bluevine account, a unique bank account number, and a physical lockbox address. With the Bank account number, the business receives ACH payments and with the PO Box, cheques. The customer continues to make payments in the clients name, known as non-notification factoring. In a non-notification program, communications with your customer are minimized so that the factoring company’s involvement is almost transparent. Note, many of the vendors mentioned above may offer more than one product, as they look to broaden their product portfolio. But the above generally represents their bread and butter. Next, we will look at some of the vendors that offer Online Small-Business Term Loans. Don’t forget to sign up for TFMs weekly digest delivered to your inbox every Monday here Follow me on Twitter @TFMatters Related Articles Why Marketplace Platforms Need Skin in the Game: An Interview… Are Invoice Auction Marketplaces on Life Support? Post 2 Are Invoice Auction Marketplaces on Life Support? Post 1 How Marketplace Lenders Can Better Protect Investors It Feels Like 1999 All Over Again for Marketplace Lending It’s Official – Average Joe (Or Jane) can Invest in… Discuss this: Cancel reply Your email address will not be published. Required fields are marked *Comment Name * Email * Website Notify me of new posts by email.