BFS Capital, formerly Business Financial Services, is a small business lender that has been around since 2002. They recently filed with the SEC for a confidential IPO and so I wanted to learn more about them. I contacted the company and their CEO, Marc Glazer (pictured below), agreed to this email interview.
What does BFS Capital do exactly?
We empower the growth of small businesses by providing timely, flexible financing solutions. Our solutions include loans and merchant cash advances ranging from $4,000 to $2 million over terms of four to 24 months.
Why did you start the company and how has it changed over the years?
In 1998, I co-founded a company called 4SmallBusiness, a pioneering small business portal that became one of the most trafficked startup websites prior to the 2001 NASDAQ technology crash. In meeting the needs of small businesses, it became clear that accessing business financing was a constant obstacle to small business growth. The solution is BFS. I invested my own funds and attracted outside investors who were confident in my experience, skill set and ability to devise the right strategy to address this segment.
As a pioneer in the industry, BFS Capital overcame the worst economic downturn since the Great Depression. It was the only year we did not grow–and this was by design.
Then, we added our loan product in 2011, significantly expanding our market opportunity by addressing the financing needs of small business owners in nearly every industry, driving our exponential growth.
What is the breakdown of loans versus merchant cash advances?
Our loans address the needs of businesses with stable cash flows and are repaid on a fixed schedule. MCAs address the needs of businesses with fluctuating or seasonal sales. Loans are roughly 80% of our business, with MCAs representing the balance.
With the rebranding to BFS Capital, will you remain a balance sheet lender or are you going to add a marketplace?
We think that our new brand better reflects the company that we are today. Having said this, we always evaluate opportunities to address customer needs and to expand the market that we serve.
Who are your investors today that provide you with the capital for the loans?
We are supported by private equity and institutional partners, including Wells Fargo Capital Finance, Edison Partners and Honeywell Pension Funds.
Where are your borrowers coming from? Is it primarily through ISOs? What percentage is offline versus online?
Primarily through ISOs, but also through our direct and strategic partner channels.
What sets BFS Capital apart from other small business lenders?
BFS is one of the longest-tenured players providing financing to the large, growing and underserved small business financing market, offering solutions to a broad set of industries. We take time to get to know our customers’ needs and goals, and leverage an extensive dataset, insightful underwriting, and progressive technologies to provide the right financing solution at the right time. And because we offer access to financing up to $2 million, we are able to address the needs of more established businesses, as well as those of existing customers as they grow.
What is your average borrower profile and average loan terms?
In 2014, we served more than 400 industries as classified by the North American Industry Classification System (NAICS) with retail trade, accommodation/food service and construction representing the largest percentage of originations. The customers that we finance have been in business for an average of 8 years and borrow approximately $80,000 over an average term of 12 months.
Can you talk about your approach to underwriting?
BFS’s underwriting process anchors our focus on credit quality by combining the automation of our proprietary algorithms with the skills of our underwriting team. The algorithms leverage our unique data set derived over years of financings. Ultimately, our model avoids overleveraging a business and continues to generate a return for our investors.
Why did you decide to explore an IPO at this time?
We continuously evaluate options that make sense to promote the needs of our customers, employees and investors while fostering the growth of the company.
