Market Woes Affecting Online Lenders

11:54 08 January in Blog

There’s a great deal of uncertainty in the market right now. The Fed has already increased their target short-term rate from 0.25% to 0.5%, and they’re planning on increasing it incrementally throughout 2016. In recent years, online platforms like LendingClub Corp. and Prosper Marketplace, Inc. have challenged banks’ hegemony in the lending industry. Today, we’ll discuss how the rate hike and other developments have had a negative effect on online lending platforms and ask whether or not they’re here to stay.

Online Lenders Arrive on the Field

Online lenders find borrowers and sell their loans to investors. Using comparably low operating costs and working with investors with low yield expectations, they’ve had considerable success. According to a Wall Street Journal analysis of securities filings, marketplace loan funds raised $8 billion in 2015, over six times the amount raised the year before. Recent market woes are pinching the numbers, however, and putting online lenders’ niche at risk.

Online Lenders Forced to Raise Rates

Funding for consumer loans has started to show signs of damage. Among the recent ills are delayed deals, increased funding costs, and declining prices for securities backed by the loans. Many online lenders will require borrowers to pay higher borrowing costs. LendingClub Corp., for example, raised their interest rates by 0.25%, matching the increase by the Federal Reserve in their short-term rate. Citigroup Inc., which has sold over $1 billion in loans from Prosper, is now offering higher and higher yields to entice investors to buy. The end result will either be rising costs for borrowers or diminishing margins for investors and the lending platforms they work with.

Growth of Online Marketplace Lending in Doubt

The volume of loans made by online platforms like Prosper and LendingClub have surged in recent years, and investment vehicles that buy marketplace loans have grown as well. Now, experts are wondering if the growth will continue. In October, Stockholm-listed P2P lender TrustBuddy collapsed after serious misuse of client money. Poor stock performance by several major U.S. platforms is another cause for concern in the industry—as is the pullback of credit that has forced some high yield mutual funds to halt or close redemptions. In the end, it remains to be seen whether the recent poor performance by online lenders is an aberration, or something here to stay.

Financing with Capstone

Capstone uses unique underwriting strategies to provide accounts receivable invoice factoring, PO financing, and trade finance to small businesses, subcontractors, licensees, and distributors. For more information, please visit our homepage.

Here Comes the Surcharge: Big Banks Dealt another Regulatory Blow by the Feds

21:09 20 November in Blog

Here Comes the Surcharge: Big Banks Dealt another Regulatory Blow by the Feds

In another effort to reduce the risk of “too big to fail” banks and financial institutions, the Federal Reserve plans to hit the largest of U.S. banks with an expensive new regulation. Accordingly, Federal regulators intend to impose a surcharge on the largest U.S. banks requiring them to maintain a fatter cushion in order to protect them from potential losses. The version of the surcharge proposed by the Feds will be tougher than the one international regulators agreed to.

Additionally, when determining the size of the new capital surcharge, the Fed will penalize those banks that heavily rely on volatile forms of short term fund, such as overnight loans. By implementing these measures, some of the larger U.S. banks may need to increase their capital cushions beyond those of their international rivals. The move has led some to wonder if Washington is putting U.S. banks at a competitive disadvantage. The exact amount of capital needed by big banks has yet to be determined.

Banks have added substantial capital since the financial crisis and, at present, are currently subject to many new regulations. The exact range for their capital surcharge hasn’t been settled on by the Fed. However, they are considering a range that extends a few percentage points higher than the top range of 2.5% of risk-weighted assets imposed by international regulators. It’s quite possible U.S. banks could face surcharges as high as 4.5%.

According to regulators, by raising the capital requirement amounts for firms that pose the greatest risk to the U.S. financial stability, the Fed intends to improve these firm’s resiliency. What is at issue is the requirement that the world’s largest financial institutions hold an additional layer of padding in case of another financial crisis. While the details of the Fed’s proposal on specific banks are not yet clear, firms with large broker-dealer operations, like Goldman Sachs Group, could potentially face increased capital charges under the Fed’s plan. This is because such firms rely on large short-term loans to finance client activities.

Firms like Goldman Sachs and Morgan Stanley count such short-term liabilities as more than one-third of their liabilities. Both firms have indicated in regulatory filings that they are maintaining enough capital to meet international surcharge requirements. The U.S.’ plan to enact a higher surcharge shows the latest move by Washington to boost the banking system by requiring Wall Street to protect themselves against losses. As a bonus, regulators adopted additional rules requiring banks to hold safe assets that they can sell for cash if they need to.

It is not clear how many U.S. firms will be required to raise additional capital to comply with the United States’ tougher surcharge requirements, and some of the larger banks declined to comment. However, it is clear that larger U.S. banks will argue the surcharge is putting them at a competitive disadvantage.

As the Feds continue to further regulate the banking industry, loans to small and midsized businesses become increasingly more difficult to obtain. Capstone Capital Group, LLC can assist you. We have been assisting small to mid-sized businesses in obtaining the required working capital they need to grow and thrive, and have been doing it for many years.

Capstone specializes in Single Invoice Factoring (“Spot Factoring”) for businesses in need of immediate cash. For more information about our Spot Factoring product and how we can help your business grow, contact us today at (212) 755-3636, or visit our website at www.capstonetrade.com.

Construction Loans on the Rise Says FDIC

04:57 19 September in Blog

According to recently released figures by the FDIC, outstanding construction loans for both residential and commercial projects increased to $223.2 billion in the second quarter. That is a 4% increase over the first quarter.

According to economists, the increase is due to the fact that lenders appear to be growing more comfortable extending credit, and the demand for credit is improving. Based on this, both residential and commercial construction should increase steadily moving forward. This is because the level of construction still remains low historically and vacancy rates are falling.

Vacancy rates have been declining in recent years. Since 2010, office building vacancies in the top 79 U.S. metropolitan cities have dropped slowly from their recent high of 17.6%.

Despite the small increase, construction lending has a ways to go to even approach half of its highs during the real estate boom. Homebuilders and lenders seem to agree the boost is slight, staying optimistic, as they have seen more banks of all sizes entering the construction lending space in the past 12 months.

It seems evident that one factor needed to revive the stalled home construction business is an increase in lending to builders. Home construction accounts for 5% of the U.S. gross domestic product but remains at 3.1% for the third consecutive year in this year’s second quarter.

Several factors which have impacted the new home market have been:

Shortages of lots and labor.
Stagnant wage growth for would-be home buyers.
Higher new home prices have steered some potential buyers to the cheaper resale market.

Nevertheless, the construction market seems to continue to gain steam, albeit slow, and according to some, banks seem to be a bit more aggressive at chasing the right deals which has helped loosen overall loan terms. According to Scott Laurie, chief executive of California builder the Olson Co. “It’s a good world today, the best it has been to be borrowing and building since the recovery started.”

With construction lending on the rise, it appears evident that more and more constructions jobs are slated to increase this year as well. Thus the need for invoice factoring by contractors, sub-contractors, and construction companies has never been greater. It is common knowledge that in the construction industry, customers are slow to pay contractors, sub-contractors, and construction companies for their work. Now these individuals and companies can get immediate cash for their invoices.

With Capstone Capital Group, LLC’s single invoice factoring program, we can help you move on to the next phase of your project right away. You can even take on new projects without worrying about additional working capital requirements.

We have been helping small to mid-sized businesses for years to obtain the necessary working capital they need to sustain and grow during uncertain economic times without all the red tape you typically get from most banks. Capstone Capital Group, LLC specializes in Single Invoice Factoring (“Spot Factoring”) for firms in need of immediate cash. Spot Factoring provides flexible, no contract invoice selling in exchange for working capital from Capstone Capital Group.

To learn more what we can do for you and your business, visit us on the web at https://capstonetrade.com/, or give us a call today at (212) 755-3636.

Recovery is Slow for Small Business Lending

17:46 21 August in Blog

While the economy slogs along at a snail’s pace and businesses of all sizes continue to persevere, banks remain steadfast in reigning back loans for small businesses. Even though loans to small businesses were up 1% from last September, they are still 18% less than what they were in 2008 according to the Federal Deposit Insurance Corporation.

Traditionally, small businesses were able to obtain necessary working capital loans through small local banks. For decades, local business owners sat down with bank executives and built relationships that were beneficial for both the bank and the business. However, since the housing bust in 2007 which caused numerous bank failures, many of the surviving banks have changed their underwriting practices and have literally converted loan approvals into a checklist. Relationship lending is virtually gone now and small business owners have had to consider alternate forms of financing to maintain their livelihood.

Some business owners have tapped into their savings or retirement plans, mortgaged their homes, asked money from family and friends, and some have even turned to high cost, short term loans to keep their entrepreneurial hopes alive for just a little bit longer. While a majority of these borrowers have good credit and more than two years history of being in business, local bank failures over the past few years and the Dodd Frank to big to fail bank legislation have caused the remaining banks to shy away from small business funding. Instead of developing the necessary expertise to handle small businesses accounts, they instead choose to penalize small businesses by showing them the door.

Although some small business owners have found it difficult to obtain the necessary capital they need to maintain and grow their businesses from their local bank, options do exist. Fortunately, Capstone Capital Group, LLC has the solution.

Capstone Capital Group, LLC has been helping small to mid-sized businesses for years obtain the necessary working capital they need to sustain and grow during uncertain economic times without all the red tape you normally get a bank. Capstone Capital Group, LLC specializes in Single Invoice Factoring (“Spot Factoring”) for firms in need of immediate cash. Spot Factoring provides flexible, no contract invoice selling in exchange for working capital from Capstone Capital Group. Call Capstone at (212) 755-3636 and speak with a representative today.

Fed Up or Fed Down?

19:37 08 May in Blog

On May 7, 2014, Fed Chairwoman, Janet Yellen, testified before Congress and provided information on a host of issues relevant to all of our businesses.

Ms. Yellen found that business is rebounding at a fast pace and making up for the loss of business in the first quarter of 2014 which was down primarily due to the harsh weather experienced during that time.

Ms. Yellen would not comment on when interest rates would be raised. However, the point is that interest rates will continue to remain low for the foreseeable future. Obviously with budget deficits as large as they are within the Federal Government, it will be difficult to pay a higher rate on government debt should rates rise with so much short-term government debt outstanding.

Ms. Yellen was bullish on the stock market and indicated that there is no bubble as a result of the Fed’s policies. She did indicate that certain sectors may be reaching historic highs, but there is no risk to the overall financial system or the stock market from these pockets that may have higher than normal price-earnings ratio and valuations.

Ms. Yellen extolled the benefits the Fed’s policy has had in the housing market. She equated the Fed’s policy to bring back wealth to many citizens who are homeowners but were once underwater as a result of the financial crisis. She expressed concerns about the job market because the unemployment rate, when combined with the labor force participation rate, demonstrates that the employment market is not healthy. She sites that those unemployed for at least six months and those working part time but would prefer a full-time job, are at historic highs.

What does this mean to you as a small business owner?

Many opportunities are available to grow your business; the economy is making up for lost time due to the weather related slowdown in the first quarter of 2014.
There are plenty of workers out there looking for full-time jobs that pay well. The labor force will support your expansion.
Low interest rates means that banks will not be taking on risks associated with funding to small businesses.

Just for fun, what does this mean to you as a person?

If you don’t own a home maybe it’s a good time to buy one if you can afford it.
If you’re a gambler, try your hand at the stock market, as the Fed will continue to support it with excess liquidity.

Now is the time to arrange a spot factoring facility with a company like Capstone Capital Group, LLC for your working capital needs to fund your expansion and increased staffing costs.

To view the full hearing click here

It’s the Economy, Stupid?

19:47 23 January in Blog

Everyday, depending on what consumers or employers are doing, the economy is either growing or contracting. There are a few Economic Indicators or news announcements that you might be interested in following to come to your own conclusions:

The decision by the Federal Reserve (“Fed”) to either increase or decrease the Quantitative Easing (“QE”).
Whether or not Congress or the President plans on not enforcing certain aspects of Dodd Frank,
How your local Business Climate is reacting to the changing economic conditions in your region or area of operations.

The decision by the Fed to ease further or decrease their QE program is important because the program has had unintended consequences. The original strategy behind QE was to increase the money supply to stimulate the economy. Put simply, if banks had more money they would lend it to you, the small business owner. In turn these business funding solutions you to hire new employees and increase sales through which the economy would grow. grow. The reason why small business funding may have worked in the past (i.e. the early 1990’s) is because banks did not receive interest on funds deposited at the Fed. Under the QE banks will receive interest on their deposits. This has translated to no lending to the Small Business Community because lending to the Federal Governmentcomes without the chance of a default. Small Businesses who take risks often default and are not as good credit risks as the Federal Government.

The “To Big to Fail Banks” are now lending to their guarantor and not to you. These banks have been able to recover from the financial crisis without taking any risks. During the same period of time in the early 1990’s the Prime Rate was 8% (per annum) and the Fed Funds Rate was approximately 3%. Parking money at the Fed yielded negative 3% and lending to a good credit yielded 5%. The banks made loans and the economy recovered all they way until 2001. As a result of the stimulus the private sectorrecovery led to robust economic growth with limited (if any) budget deficits by the time President Bill Clinton left office.

Because the banks are lending to the Federal Government there is no inflation risk since all the excess liquidityis in the bank being borrowed by the Fed. That’s good for a business owner and homeowner but not good for people planning to retire because more likely than not, they’ll have to go back to work to increase their nest egg or just cover living expenses. This is why temp agencies have so many qualified candidates to hire to support the growth of your business.

When reviewing Dodd Frank headlines what you should focus on is the reserve requirements of the banks. If it appears that the law will be amended to reduce the reserve requirements for small business loans then you could consider going back to the bank for financing. However, you will still need audited financial statements and three years of profitable operations, personal guarantees and the rest. You have to weigh the cost to you personally versus going to a finance company or Factor where the cost of capital may seem more expensive but the cost to you personally as the business owner is far less and there is less risk to your personal assets than at the bank.

Finally, how is the local economy doing? Connecticut is considering developing a Port Authority, Florida is creating a for-profit railway system, New York is building at least three new bridges, the City of New York is in fear of being washed into New York Harbor and has initiated a $20 billion flood control plan. I am sure if you read your local paper everyday you will find that there are significant opportunities available to you or your business. Take a minute to cut out the article and call the reporter to ask them questions. Who doesn’t like to talk about their work? Contact whoever is in charge of the project; find out how you can help.

The worst case scenario is that you prepare a presentation and you don’t get to participate in the original project it was intended for however the presentation can be utilized for a variety of other opportunities so another opportunity can be gained from poking around. This could actually lead to multiple jobs. Although the opportunities identified above all seem like construction projects, they need Supplies, Office Supplies, office space, etc. and they last several years. You might not be able to change the direction of the economy, but you are able to change the direction of your company. Set yourself up for success by working towards completing your business goals and use spot factoring to make progress by any means necessary.

Download: Infrastructure Investment & Jobs Act – Contract Opportunities and Funding Analysis

Capstone wants your business to take full advantage of the opportunities (or use projects) available through the Infrastructure Investment & Jobs Act recently signed into law.