Greenbox CEO Jordan Fein Talks Fintech, Part 1 of 8: The History of the Lending Industry and Greenbox’s Origin

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Greenbox Capital CEO Jordan Fein joined Smarter Loans to talk all things alternative business funding. In this video, Jordan begins by exploring the history of small business lending in the United States and Canada. Keep watching to learn the story behind Greenbox Capital® and why Jordan made the choice to expand into the Canadian market in 2016.

Watch the video, or keep reading below for a full transcript.

The History of the Lending Industry and Greenbox’s Origin

SL: Let’s talk about your professional journey, how it led you into business financing, and how you created Greenbox Capital.

JORDAN: This journey started in 2007. It was in credit card processing. This whole space that is all over the world came from the credit card processing space, originally from one company called Advanced Via in 1999. It was in the United States and they had a patent on basically providing merchant cash advance through credit card receivables. Small business loans, the way you know it today, they didn’t exist. It was morphed into that, and I’ll get to that in a minute. But essentially there was one company.

We were referring out these clients of ours to get capital for their business. And one day we said, “hey, these commissions are great, but why don’t we do this ourselves?”. So we started to do that, and I focused exclusively on that. I wanted to build—literally started the company with a desk and a phone—underwriting standards, data tracking, policies, procedures, risk management tools, controls. Everything that you would think that you need for a finance company. We weren’t a FinTech yet, but we were more of just finance, making loans or making merchant cash advances and deals. Loans weren’t even out there yet. So, we did that for a few years and built up our portfolio, and before we knew it, we said, “hey, look, let’s try to get other deals from other credit card processing companies”.

To do that, we said, “wait a second, what credit card processing company is going to give us their business as a credit card processing company?”. They’re going to think we’re stealing their deal. So that was right around 2012 when we created Greenbox Capital, an independent company, unrelated to the credit card processing company. Greenbox Capital was focusing exclusively on merchant cash advance. It was only in the US market at that point. Didn’t offer invoice factoring, collateral loans by real estate like we do today—just merchant cash advance. We started basically getting different credit card processing companies, and at this point, brokers started to come into play. Full on brokers were out there and just doing a better job than the credit card processing companies. They [merchant cash advances] were just not what they were supposed to be doing because they’re focused on credit card processing.

So then credit card processing companies became obsolete. And at this point, somewhere in the same neighborhood of plus or minus a couple of years—well, let’s go back a second to 2008 when the patent for merchant cash advance gets blown by a group of companies. Now there’s several companies offering merchant cash advance, and then in comes the ACH debit. The merchant cash advance, ACH debit, and that developed into small business loans as we know it today, where you have your large PayPal acquiring Swift, and you have your Square doing loans even though it’s out of credit card receivables all over again.

But that’s how the industry really developed. They said, “hey, look, we’re running out of companies to fund with credit cards. Let’s fund companies that don’t have credit cards too”. So there you go. And then it really became a lot easier to fund businesses through ACH than take out of the credit cards. You’d be talking about delays in getting your revenue if you’re on a lockbox, or if you need it to be integrated, it just took too much time. It’s just so much more seamless.

So now you have the industry of small business lending and the small business alternative finance MCA industry as we know it today, which is fast, seamless, ACH debit, or in Canada, EFT to your bank account. Very, very simple. So that’s the journey of how I came into where we are today. And then we joined the Canadian market in 2016, and I’ll tell you, we were very happy we did. We’d love doing business in Canada. For diversification purposes, but also, I tell this to everybody—I think that Canadians have great financial responsibility overall, especially compared to the United States. They just perform better and they have little more integrity in their financial responsibility behavior.

SL: That’s an interesting point. I was curious to ask you about that because you mentioned 2016 is when you entered the Canadian market and that’s sort of the year,

“Canadians have great financial responsibility overall, especially compared to the United States. They just perform better and they have little more integrity in their financial responsibility behavior.”

2016, 2017, when the alternative lending space in Canada really started to take off with major players like yourself entering the market. So what was it about the Canadian market that brought you north?

JORDAN: If I could give you a little bit about myself to help you….I am a person that’s innovative. I’m a person that’s curious. I’m a person that likes diversification. So being that we’re in the US market and seeing that Canada was kind of untapped in terms of being new made me curious to look into it. I said, “look, they’re right there. We operate the same hours. Let’s do this”. And I thought also that the American market had really started to heat up and really started to get over leveraged, and we’re not the kind of company that’s ever gonna—there’s so many companies out there that are like this—we’re not the kind of company that is going to just grow at all costs. We’re not going to change our underwriting standards, fund deals. I don’t believe in that. I think that you have to prepare for the downside. I think that’s super, super important when you’re managing a portfolio of assets.

The reason why was really diversification and curiosity of, “okay, let’s go into this market. Let’s see what opportunity is there”. I’ll tell you on one hand, the availability of data is very different than the United States. The laws. And it makes it much more difficult to underwrite. It really does. You get access to less information, so you could get into trouble as a funder, right? You really could. I think that there are certain things, or certain do’s and don’ts that we learn over the years of how you have to approach it differently, and if you don’t, you can end up having way worse performance in the Canadian market than the United States. But we have found success in the Canadian market, and I’ll tell you it’s been a good match and we’re excited to continue to grow that footprint.

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Jordan Fein
Contributor and expert in finance and loans, business and economics