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Kansas Governor Laura Kelly signed The Commercial Financing Disclosure Act (SB 245/SB 345) into law on Friday, April 12th, as we learned from the Revenue Based Finance Coalition. The RBFC introduced this bill as one of their proactive pieces of Total Cost of Capital disclosure legislation nationwide. According to the law, "This act shall take effect and be in force from and after its publication in the statute book." As we wrote about the bill passing through the Kansas state legislature, the following are the Key Points of the Kansas Commercial Financing Disclosure Act Requires lenders to disclose certain information about commercial financing products, including the total cost of capital Mandates registration with the state bank commissioner for entities offering commercial financing Grants regulatory authority to the commissioner to oversee compliance Empower the Attorney General to enforce the provisions of the Act "Violations would be punishable by a civil penalty of $500 per violation, but not to exceed $20,000 for all aggregated violations. If a person violates the Act after receiving written notice of a prior violation from the Attorney General, the new violation would be punishable by a civil penalty of $1,000 per violation, but not to exceed $50,000 for all aggregated violations." Additionally, Section 4 of the law is as follows: No broker shall: (a) Assess, collect or solicit an advance fee from a business to provide services as a broker. Nothing in this subsection shall be construed to preclude a broker from soliciting a potential business to pay for, or preclude a potential business from paying for, actual services necessary to apply for a commercial financing transaction. Such actual services may include, but not be limited to, a credit check or an appraisal of security, where such payment is made by check or money order payable to a party independent of the broker; (b) make or use any false or misleading representations or omit any material fact in the offer or sale of the services of a broker or engage, directly or indirectly, in any act that operates or would operate as fraud or deception upon any person in connection with the offer or sale of the services of a broker, notwithstanding the absence of reliance by the buyer; or (c) make or use any false or deceptive representation in its business dealings.

A bill that resembles the commercial financing laws from Georgia and Florida is being put through the South Carolina legislature. The bill is so new we don't have a bill number yet but we understand that it takes the total cost of capital approach with no APR disclosure requirement. As much as we want to provide more details to you there is limited information right now. There is a lot of work to do before it reaches its final form or if it ever gets to the governor's desk. The main point here is that South Carolina is yet another state introducing this type of commercial finance bill while others are either currently in the process or will be soon.

Yisroel Heber (a.k.a. Scott Heber) and Yechiel Meshi-Zahav have been indicted for allegedly running a loan fraud scheme from multiple entities that targeted small businesses and defrauded them of at least $2 million, according to a press release from the U.S. Department of Justice. Here's a closer look at the scheme and the funding companies involved. The Funding Companies The indictment details how Heber and Meshi-Zahav allegedly used multiple funding companies to lure victim small business owners. These companies include: Blue Ribbon Funding Tru Capital Funding Fund Capital LLC (a.k.a. “Fund Cap LLC”) Ameriquest Capital How the Scheme Worked The scheme was an advance-fee loan scam. When seeing the details of the case it's hard to imagine how the defendants were planning on getting away with this besides running and hiding. Here's how it allegedly unfolded: Setting the Trap: Heber and Meshi-Zahav, posing as representatives of the funding companies, contacted small businesses. Promise of Loans: They promised these businesses loans but required upfront fees before they sent the loan in portions over several weeks. (This is a very unconventional loan structure). Extracting the Money: Once the victims provided their bank account information for the supposed fees, Heber and Meshi-Zahav allegedly withdrew thousands of dollars from those accounts. No Loans Issued: The promised loans never materialized, leaving the victims financially drained. Why This Matters This case highlights the dangers of advance-fee loan scams that prey on small businesses with the promise of financing. Remember, legitimate lenders won't ask for upfront fees before approving a loan. The structure or name of this type of financing is hard to put a label on it with the information given from the indictment. By cracking down on such schemes attached to business loans, authorities are sending the message that they will continue to seek out those who are hurting small businesses by committing illegal acts. Main Message: Protecting Your Business Here are some key points to remember when seeking funding for your small business: Research the lender thoroughly. Verify their legitimacy with official sources (see our Funders List or other lender lists). Never pay upfront fees. Legitimate lenders don't require them. Be wary of unrealistic promises. If a loan offer seems too good to be true, it probably is. By following these steps and staying vigilant, you can protect your business from becoming the next target.

The small business community is a vital part of the global economy, and it's no surprise that the number of new business applications has skyrocketed recently to more than 5 Million applications in 2023. However, despite the surge in entrepreneurial spirit, small businesses often face significant challenges, including securing funding and navigating the complexities of financial management. This is where Hello Alice steps in. Hello Alice is a company on a mission to empower small businesses with the resources they need to thrive. They offer a unique combination of financial resources and data-driven tools powered by artificial intelligence (AI). Hello Alice's recent announcement of a Series C funding round brought its valuation to $130 million which is a testament to their commitment to supporting small businesses. This influx of capital will allow them to expand their offerings and reach a wider audience which is already at approximately 1.5 million small businesses on their platform, per their President Elizabeth Gore. A core focus of this expansion will be Hello Alice's AI-powered financial health services. These services provide small businesses with valuable insights into their financial performance, helping them make informed decisions about their future. Equitable access to capital is another cornerstone of Hello Alice's mission. They are dedicated to ensuring that underserved communities have the same opportunities to secure funding and grow their businesses. Their main programs include Hello Alice Small Business Mastercard, the AI-driven Business Health Score, the Equitable Access Program and the $70 Million Equitable Access Fund, and its Elevate the American Dream initiative Hello Alice's innovative approach to funding and financial tools is poised to make a significant impact on the small business community. With their recent funding round and commitment to AI-powered solutions, Hello Alice is well-positioned to empower small businesses and fuel economic growth.

Carl Ruderman, the former chairman of 1 Global, was sentenced on Jan. 31 to five years in prison for his role in a $250 million securities fraud scheme, essentially bringing an end to this long-running case that involved many. The judge also ordered Ruderman to pay a forfeiture money judgment in the amount of $285,599,532. Ruderman was accused of making false statements to investors about the company's short term business financing offerings and using investor money for his own personal expenses. He also diverted money to businesses that benefited him and his family. Four other co-conspirators were also sentenced in connection with the scheme. Alan G. Heide, 1 Global's former Chief Financial Officer, received a 60-month prison sentence and over $57 million in restitution. Andrew Dale Ledbetter, a former 1 Global executive, was sentenced to 36 months in prison for conspiring to commit wire and securities fraud. Jan D. Atlas, another former 1 Global executive, received a 30-month prison sentence for his involvement in the scheme. Steven A. Schwartz, a lawyer previously associated with 1 Global, was also sentenced to 18 months in prison. 1 Global, a company that provided short-term financing to businesses in the United States, filed for bankruptcy in 2018. The company's collapse left many investors with significant losses. Ruderman's sentencing is a reminder of the serious consequences that can result from securities fraud. Investors should be wary of any investment that sounds too good to be true, and they should always do their own research before investing any money.

When was the last time you saw hundreds of millions of dollars given back to the government from business owners who felt they might have received that money in some error? Well, now you can say you witnessed that as it was announced by the AP yesterday April 2nd that the IRS has received $225 million from a voluntary disclosure program regarding the Employee Retention Tax Credit. The disclosure program allowed the business owner to keep 20%. The ERTC was essentially a grant program designed to help businesses recover costs for retaining employees during pandemic-era shutdowns, however, it was inundated with fraud. Not sure it was much of a surprise given it was on the heels of the massive fraud for other Covid-era programs such as the Paycheck Protection Program. Another $251 millions in claims was voluntarily withdrawn because those business owners feared the consequences of an improper filing or credit. This is a shocking amount when you consider the cooperation from taxpayers and whether they knew errors or fraud were responsible for the credit they either received or were in the process of possibly doing so. The program has been paused for months while the IRS investigates everything. They say they will reopen the ERTC program at some point. "The IRS has assessed $572 million in audits of more than 12,000 businesses that filed over 22,000 improper claims", according to the AP article.

The saga of the elaborate loan scheme that defrauded commercial lenders and a merchant cash advance company, Caymus Funding, has finally reached its conclusion. Indicted in October 2020, Ryan P. Mullen, 43, a resident of Jayess, Mississippi, was sentenced on March 20th to 160 months in prison for his leading role in the multi-million dollar conspiracy. Duane A. Dufrene, age 56, of Destrehan, LA., was sentenced on March 27, 2024, to 24 months in prison for his role in the 2 separate fraud cases. They both were ordered to pay $6,401,385.96 in restitution and will serve an additional 3 years of supervised release. As you might recall from our previous articles, this case involved a group of individuals who used fabricated documents, like fake tax returns and phony financial statements, to secure loans to buy multiple properties including The Briars (pictured below), Hotel Vue (pictured above), and take out merchant cash advances from Caymus Funding. This ring, which Mullen spearheaded, targeted traditional banks, a credit union, out-of-state lenders, and Caymus. Mullen, acting as a broker for shell companies with no real assets, presented Caymus Funding with falsified vendor accounts and bank records he obtained from Dufrene, who was paid for his actions. This elaborate scheme allowed the group to secure over $6 million in funding for various fake entities, which they then diverted for personal gain, including the purchase of luxury vehicles. While some members of the conspiracy, like Dillon Arceneaux and Zeb Sartin, had already pleaded guilty and received their sentences, Mullen's sentencing was the most important as his prison sentence sends a strong message to other would-be criminals out there. "The sales of The Briars and the two hotels were premised upon not only false information prepared by Dufrene and given to the financial institutions by Mullen, but also on inflated appraisals stemming from side sales agreements between Mullen and Dufrene", according to the DOJ press release. Keesler Federal Credit Union, which provided funds for Mullen’s purchase of The Briars, has foreclosed on that property and taken possession of it. Red Oak Capital Group LLC, which loaned Mullen the funds for the purchase of Hotel Vue and Super 8 Motel in Natchez, has foreclosed on those properties. Per the DOJ press release, "The crimes committed by the two defendants lost legitimate lenders’ money by receiving loans for fraudulently overvalued properties and nonexistent businesses,” said Lisa Fontanette, Assistant Special Agent in Charge, IRS Criminal Investigation, Atlanta Field Office.  “IRS Criminal Investigation special agents and their law enforcement partners will continue to investigate and bring to justice those who engage in financial fraud schemes.” The story of Ryan P. Mullen and his co-conspirators may be almost over, besides additional restitution orders, but its lessons serve as a valuable cautionary tale for the entire financial services industry. By prioritizing robust due diligence practices, lenders and cash advance providers can help ensure that their services are used for legitimate business purposes by legitimate companies. When brokers push back at MCA Funders' stringent onboarding processes, this case should be at the forefront of why they have the process in place.

How many options do business loan brokers have for business line of credit lenders? For non-bank direct lenders catering to small-medium businesses, there are about 10 or less. And those that do have broker referral programs are not easily accessible. This needs to change. There are certainly reasons why lenders have chosen not to offer this product or why existing lenders are very picky with their origination channels. Many of those reasons may be valid however there is an opportunity for more lenders to offer business lines of credit WITH a broker referral program because it is being done successfully by other lenders. Let's dive in. First, What is a Business Line of Credit A business line of credit (BLOC) is a financing product designed for businesses. It functions similarly to a credit card, with a revolving credit line and an interest rate. Here's a breakdown: Line of Credit: A BLOC grants access to a pre-approved amount of money. Unlike a loan where you receive a lump sum, a BLOC functions like a revolving credit line. Flexibility: You can withdraw funds as needed, up to the approved limit. Only the amount you borrow accrues interest. Repayment: As you repay what you've borrowed, the available credit in your line replenishes, allowing you to withdraw again if needed. Amounts: For non-bank lenders catering to small businesses, the maximum line of credit is in the range of $250,000 but at least one of the following lenders has their maximum at $750,000. What are the current options? Direct Lenders include American Express, Ampla, Backd Business Funding, Bluevine, Fundbox, Headway Capital, OnDeck, Idea Financial, and just recently Intuit Quickbooks came out with a BLOC. A few that offer the product but we have not confirmed are direct lenders are Fundible, Kapitus, and SBG Funding. Then there might be a few others out there that we are not aware of. According to the Consumer Financial Protection Bureau, “The total estimated value of the small business lending market is $1.4 trillion.” Barriers to Entry Licensing and Regulatory Requirements Obtain appropriate licenses and regulatory approvals from state and federal authorities Capital Requirements Having sufficient capital reserves to fund the credit lines extended to borrowers. This upfront capital requirement can be a major financial barrier especially if the Cost of Capital is not low enough to where the product offering could net a profit. Risk Assessment and Underwriting Capabilities Lenders need robust underwriting processes to assess the creditworthiness of business applicants and manage the risk of defaults. Competition from Incumbents Overcoming brand recognition and customer loyalty to these incumbents can make it difficult for new lenders to acquire market share, at least initially. How lenders get the product set up Many of the lenders listed do have a partnership with a bank to legally offer the product. Some of the partner banks include WebBank, Celtic Bank, and First Electronic Bank. The lenders will list these banks on their website providing a disclosure that mentions they are not a bank, but merely a ’fintech’. For example,  Bluevine says on its site,” Bluevine is a financial technology company, not a bank. The Bluevine Line of Credit is issued by Celtic Bank.” What is a broker referral program? A referral program is a partner channel where the lender forms agreements with referral partner companies that will send them packaged deals for approval. In return, the partner or broker earns a commission for each deal that is successfully closed. These programs will differ from lender to lender. Why lenders are strict with who they partner with Some lenders might hesitate due to concerns about managing broker relationships, potential fraud, or decreased profit margins. However, by implementing clear guidelines, robust risk assessment processes, and efficient onboarding procedures, these concerns can be effectively mitigated. Performance metrics are used to evaluate how well the referral partner is doing. These can be more strict for line of credit lenders given the product is generally for a higher quality of business owner than some other products. However, they should be reasonable enough that a broker can sustain a relationship with even a small amount of quality submissions but to each their own. Why more direct lenders need to roll out this product More lenders need to roll out business lines of credit with broker partner channels because too few have accessible partner programs. This includes some of the previously mentioned lenders and maybe a few we aren't aware of who are direct lenders and not brokers themselves. Which leads to my next point. Because of the lack of options, brokers have to partner with other brokers who are signed up with certain lenders to get access to the business line of credit. That means there is a commission split between the two brokers which affects the originating broker's bottom line. It also means there is more potential for other issues like losing the client to the other broker, the client not getting the best product for their situation, miscommunication, delays, and more. What needs to change The business lending industry needs to address this gap by encouraging more lenders to offer BLOCs with broker referral programs. This would provide brokers with the tools they need to serve their clients better and benefit lenders by expanding their reach and increasing their customer's lifetime value. It is a win-win-win opportunity for brokers, lenders, and business owners.

Financial institutions have long been on the front lines of a war against fraudsters. These criminals are constantly developing new and sophisticated techniques to steal money. In recent years, there has been a growing concern about the use of artificial intelligence (AI) by fraudsters. A recent report by the Treasury Department highlights this concern with AI-powered fraudsters. The report warns that banks are struggling to keep up with the evolving technology being used by fraudsters. AI-generated text and deepfake technology are just a few of the tools that criminals are using to impersonate customers and spread malware. The financial services industry is being urged to collaborate in order to address this issue. By sharing information and developing new detection methods, banks can help to stay ahead of the curve. While the use of AI by fraudsters is a cause for concern, it is important to remember that banks are also using AI to fight fraud. AI-powered systems can analyze vast amounts of data to identify suspicious activity. In the long run, AI is likely to be a powerful weapon in the fight against fraud.

A government-commissioned report titled "An Action Plan to Increase the Safety and Security of Advanced AI" has raised alarming concerns about the potential national security risks posed by artificial intelligence (AI), particularly advanced AI and artificial general intelligence (AGI). The report, obtained by TIME ahead of its publication, urges the U.S. government to act "quickly and decisively" to mitigate these risks, which could escalate to an "extinction-level threat to the human species" in the worst-case scenario. Key Findings and Recommendations Urgent and Growing Risks - The report states that "current frontier AI development poses urgent and growing risks to national security," likening the potentially destabilizing impact of advanced AI and AGI to the introduction of nuclear weapons. Weaponization Risk - One category of risk highlighted is the "weaponization risk," where advanced AI systems could potentially be used to design and execute catastrophic biological, chemical, or cyber-attacks, or enable unprecedented weaponized applications in swarm robotics. Loss of Control Risk - The second category is the "loss of control" risk, referring to the possibility that advanced AI systems may outmaneuver their creators and become uncontrollable. Sweeping Policy Actions - To address these risks, the report recommends a set of sweeping and unprecedented policy actions that could radically disrupt the AI industry. These include: Making it illegal to train AI models using more than a certain level of computing power, with the threshold set by a new federal AI agency. Outlawing the publication of powerful AI models' "weights" or inner workings, with potential criminal penalties for violations. Stricter controls on the manufacture and export of AI chips. Increased federal funding for research focused on AI safety and security. Industry Concerns - The report's authors spoke with over 200 government employees, experts, and workers at frontier AI companies like OpenAI, Google DeepMind, Anthropic, and Meta. Some accounts suggest that many AI safety workers within these companies are concerned about perverse incentives driving decision-making by executives. The report was commissioned by the U.S. State Department in November 2022 and produced by Gladstone AI, a company specializing in AI technical briefings for government employees. While the report's recommendations do not reflect the official views of the U.S. government, it serves as a stark warning about the potential risks of advanced AI and the need for prompt and decisive action to address them.

CFG Merchant Solutions, LLC (CFGMS), a provider of alternative funding for small and medium-sized businesses (SMBs), has upsized its investment-grade corporate note offering to $30 million, per a recent Press Release. Key takeaways: The note received a BBB rating from a nationally recognized ratings organization. CFGMS has a proven track record, having funded over $1.3 billion to more than 31,000 SMBs since 2015. The company plans to use the proceeds to fuel further growth. This offering comes amid a trend of banks tightening credit, creating an opportunity for CFGMS. CFGMS believes its unique platform positions it well to capture market share. Executive Quotes Andrew Coon, CEO: "Our business has experienced considerable growth...This additional capital will help us continue our momentum..." Bill Gallagher, President: "At CFGMS, we believe our unique platform is differentiated from other funders across the space. We are pleased that institutional investors share this view and continue to support us." Additional Information Brean Capital, LLC served as the exclusive financial advisor and placement agent for the transaction. The following is the full Press Release: NEW YORK, NY. March 6, 2024 – CFG Merchant Solutions, LLC (“CFGMS” or the “Company”), a technology-enabled specialty finance and alternative funding provider, announced the upsize to $30.0 million of its investment-grade corporate note. The transaction was assigned a BBB rating by a nationally recognized statistical ratings organization. Since its founding in 2015, CFGMS has a proven track record of asset performance and profitability, and has funded more than $1.3 billion to over 31,000 small and medium-sized businesses (SMBs) across diverse industries throughout the U.S. The Company plans to use the proceeds from the issuance to support continued growth of the business. Our business has experienced considerable growth as banks and other funders have pulled back on credit over the past year,” said Andrew Coon, Chief Executive Officer of CFGMS. "This additional capital will help us continue our momentum in serving SMBs across the U.S." Bill Gallagher, President of CFGMS, added, “At CFGMS, we believe our unique platform is differentiated from other funders across the space. We are pleased that institutional investors share this view and continue to support us. This flexible capital will be very valuable as we seek to gain further market share.” Brean Capital, LLC served as the Company’s exclusive financial advisor and sole placement agent in connection with the transaction. About CFG Merchant Solutions CFG Merchant Solutions (“CFGMS”) is an independent, technology-enabled alternative funding platform focused on providing capital access to small and mid-sized businesses that have historically been underserved by traditional financial institutions and may have experienced challenges obtaining timely financing. The Company utilizes its historical transactional data, proprietary underwriting, predictive analytics, and electronic payment technologies and platforms to assess risk and provide access to flexible and timely capital. For additional information about the Company, visit:  https://cfgmerchantsolutions.com/. Contact: Name: Richard Polgar Title: Chief Financial Officer

A lawsuit filed yesterday against Yellowstone Capital, Delta Bridge, and dozens of other entities that some were essentially white label 'funders' and a few individuals is the final warning to those who operate similarly. Most should have already known this. The government is coming after the bad actors. This is a positive thing for the rest of the companies operating above board that help business owners across the country gain billions of dollars in working capital. Here is the summary: Main Actors: The lawsuit involves over 30 companies and individuals, including Yellowstone Capital and its founder David Glass, and Delta Bridge Funding, among others. Allegations: The accused are charged with exploiting small businesses through fraudulent loans with exorbitantly high interest rates, disguised as merchant cash advances. Legal Action: New York Attorney General Letitia James filed the lawsuit seeking $1.4 billion in interest and fraudulent fees collected from small businesses, alongside a court order to halt the illegal activities. Previous Settlements: Before filing this lawsuit, AG James reached settlements with five individuals connected to the Yellowstone operation, totaling $3.37 million in compensation for affected businesses and a ban from the merchant cash advance industry. Predatory Lending Practices: The accused operated under numerous company names, engaging in a scheme that provided short-term, high-interest funding through misleading contracts. These contracts falsely presented the advances as purchases of future revenues with flexible terms, while in reality, they imposed fixed daily repayments with interest rates as high as 820% per year. Impact on Small Businesses: Many small businesses suffered under the burden of these loans, with some, like the City Bakery in Manhattan, being forced to close due to the unsustainable debt caused by the fraudulent loans. Abuse of Legal System: The companies also exploited New York courts to further harm merchants by obtaining judgments based on fraudulent claims, allowing them to seize money from borrowers’ bank accounts. OAG's Legal Demands: The lawsuit aims to secure $1.4 billion for impacted businesses, a stop to the illegal scheme, and a lifetime industry ban for Yellowstone's founder, David Glass, among other penalties. The 289-page lawsuit includes testimony about the inner workings of how a funding company underwrites MCAs, the reconciliation process, inconsistent or non-existent policies, and much more. It will be very interesting to see how this all plays out. One thing is for sure, things have changed and I believe it will be for the better.