Alternative Financing: An Economic Weathervane

Rapid Finance Chairman Jeremy Brown gives insight into the state—and the fate—of U.S. small business

We’ve all heard analyst predictions about the fate of the economy—stagflation, recession, you name it. What if Main Street told a different story? Jeremy Brown, Executive Chairman of Rapid Finance and Chairman of the Small Business Finance Association (SBFA), suggests the answer isn’t so cut and dry.

Rapid Finance uses its leverage as a super-prime borrower to facilitate alternative financing solutions for America’s small businesses. Brown’s position as an alternative financing expert serves as a weatherwave for the small business industry. Borrowing costs are up, but economic markers look green and businesses are determined to thrive, he says.

‘Our borrowers are resilient.’

“Our borrowers are resilient. They want to pay us back. They want to stay in business.”

That’s what Brown says about Rapid Finance customers. He adds, “Some borrowers will have to extend their terms and go on some type of a payment modification. But for the most part, we don’t see that as an impediment to growing our business or expanding our portfolio.”

While Rapid acts as an alternative solution for those that cannot access bank loans, it also tries to keep rates competitive to secure low-risk customers. “When our cost of funds effectively doubles,” Brown says about rising Federal Reserve interest rates, “we have to charge more for our money to the end customer.”

Even so, they position themselves at the low end of what most merchant cash advance or small business alternative lending companies like them charge. Rather than weariness, customers have shown an uptick in capital demand.

Economic insight: Downturn or doomscrolling?

While GDP is slightly down, jobs rates are up. For Brown, this marks a contraindication, making the current economic landscape feel more balanced than doomscrolling may make it seem.

For reference, business reporter Karen Ho coined the term “doomscrolling” to refer to the act of repeatedly refreshing our newsfeed and soaking up all the bad news.

While supply chain bottlenecks and geopolitical factors influence many industries, the need for capital remains strong, he says.

Brown adds, “It’s a subject of conversation weekly with our credit and risk teams. What are we seeing with borrower behavior?” There are many specific questions they ask, including:

  • Are people paying back?
  • Are our groups seeing more first-time defaults?
  • Are people bouncing their ACH debits?
  • How are our monthly loan pools (aka static pools) performing?

With all these questions in mind, Brown says, “We’re not seeing any signs of stress that alarm us at this point.”

Does that put us in a state of positive flux? Maybe so. With robust government spending gone, Rapid is seeing a tremendous increase in demand. Brown asks, “It’s hard to know—is this a short-term thing? The start of a new strend? Have we reset the marketplace?”

Then there’s the notion it may be entrepreneurs starting new companies in the wake of those that went out of business during the pandemic.

Whatever the case, that growth is there, and it’s an undeniably changed environment.

Where banks tighten, alternative financing stay flexible

In economic uncertainty, Brown says, “Banks are the first to tighten their lending guidelines.”

On the other hand, alternative funding tends to remain more flexible. “Typically, our products don’t require collateral. Some don’t require personal guarantees,” Brown explains.

This flexibility is a relic of the early days of Rapid. “When we started our business in 2005, the industry was small,” Brown says. “It was probably less than $500 million annually in funding.” Now, it’s much more important for small businesses to access capital, and the market has ballooned as a result. All the while, alternative financing companies like Rapid maintain the flexibility that makes it so valuable to borrowers of every stripe.

Jeremy Brown on maintaining integrity regardless of the economic cycle

If alternative financing companies are economic weathervanes, doesn’t that put them in a position to take advantage of the uncertainty?

That’s not how Rapid Finance does business, nor is it the standard for the industry at large.

“The most important thing is how you treat your customer,” says Brown. “That’s on the front end when you’re going through the actual quoting, sales, and closing process. And that’s really all about consistency. The offer you make is the offer you actually close on. There are no hidden fees or costs or anything like that.”

Integrity is a central focus in the sales process through closing, but perhaps an even bigger element for Rapid is how they treat the customer after the fact. “I think SBFA members as a whole are really good about this, but it’s something we’ve always paid a lot of attention to,” says Brown.

Brown suggests having best practices on collections. “Don’t threaten or bully someone into making payments,” he says. “For us, it’s about being respectful. If somebody has a legitimate business setback, we always try to work with our customers.”

It’s always a balancing act to avoid scammers and hold illegitimate borrowers accountable. Regardless, integrity goes a long way.

It can also be helpful for small business owners to confirm whether a financing company is a lender or a broker—two different beasts. “Small business owners often don’t know the difference between who’s a broker and who is a direct lender,” Brown says. By allowing this conversation to unfold, the financing industry can help founders find clarity and get funding that’s best for them.

“Sometimes, it can actually be better for a small business owner to deal with a broker,” says Brown. “The broker can legitimately survey the market, scout out all the different opportunities, maybe put customers in products that we don’t offer, like an SBA loan or some type of equipment financing.”

Other times, business owners want to go directly to the source to get lower-cost funding.

Ultimately, that transparency is key, and it’s up to the financing industry to provide it.

Last word on U.S. small business—now and ahead

For someone in the throes of the industry, Jeremy Brown isn’t sweating. “I’m not losing much sleep these days,” he says. Where past economic downturns felt like squeezes, the current cycle—while hard to pin down—feels more opportunistic.

For that, small business owners (and those financing them) have something to look forward to.