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Regulated by multiple agencies, marketplace lenders reduce the financial system's leverage, provide greater financial transparency and ultimately deliver a better product to consumers and investors.
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Lending Club and Funding Circle are among the firms pledging to adhere to a range of self-imposed standards in small-business lending.
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Thomas Depping would have been content to keep making small-business loans through his Houston-area bank, but regulatory pressure led him to give up his charter and form a nonbank lender with the same business model.
March 10
To keep pace in the fiercely competitive and rapidly expanding marketplace for alternative small business credit, online lender Capify is pinning hopes on a merger of its far-flung business units combined with a rebranding effort.
Capify, which had been operating separate subsidiaries in Canada, Australia, Britain and the United States, announced the combination and rebranding last month.
The privately held company is more than a bit player in the alternative finance sphere, having funded more than 24,000 loans for more than $500 million over the past 13 years. Capify currently employs more than 200 people, according to founder and Chief Executive Officer David Goldin.
Still, a number of nonbank lenders are originating small business loans at a far faster rate.
New York-based OnDeck Capital, for instance, reported second-quarter origination volume of $419 million. Ascentium Capital in Kingwood, Texas reported originations of $440 million last year. U.K.-based Funding reached the $1 billion-lent milestone in April. CAN Capital, founded in 1998, hit the $5 billion mark this year.
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Goldin says his company's global reach is more important than its lending totals - numbers that he expects will rise rapidly in any event. Capify is on pace to originate about $180 million this year, up nearly 70% over 2014, he said. The U.S., Britain, Canada and Australia are home to more than 35 million small businesses, according to the company.
Capify formerly operated as AmeriMerchant in the U.S., United Kapital in the U.K., AUSvance in Australia and True North Capital in Canada. The firm is a balance sheet lender that specializes in the merchant cash advance business, in which the small business repays the loan's proceeds by pledging a portion of its future credit and debit card sales.
By moving to a unified company and brand, Capify joins a select few alternative lenders with multinational capacity, and positions itself as a candidate for partnerships with firms seeking to tap international markets, Goldin said.
"This was the right time," to consolidate, Goldin said in an interview. "We've already been [told] we're a great strategic partner because of our global reach."
A week after rolling out its new identity, Capify agreed to its first international deal, a partnership with the Chinese ecommerce firm Alibaba. Under the terms of the deal, Capify will provide financing to Australian businesses seeking to buy Chinese goods through Alibaba.
San Francisco-based Lending Club has a
Multinational deals by alternative lenders are a sign the market is moving to address a global shortage of small business credit, said William Phelan, president and co-founder of Skokie, Ill.-based Paynet Inc., a leading provider of credit ratings on small businesses.
"A big issue that is consistent across borders is the credit gap facing small businesses," Phelan said in an interview. "Banks around the world have pulled in their horns. It's tough for small businesses to get loans. That is a big problem when you look at the size of the small business sector as a percentage of the economy in a number of countries."
In addition to the rapid growth alternative lenders are enjoying in the U.S., "they're very strong in the U.K. and they're starting to show up in Canada, too," Phelan said.
Capify is hardly the first online lender to land a big-name partner. Funding Circle, for instance, has deals with Royal Bank of Scotland and Banco Santander.
