As the founder of Bizfi, Stephen Sheinbaum has become one of the industry’s leaders in using technology to disrupt the way small businesses get the funding they need to grow. After spending almost two decades practicing law, where he specialized in complex litigation and corporate transactions, this New Jersey native started Merchant Cash and Capital (MCC), one of the first alternative lending companies, in Manhattan. Ten years later, he rebranded MCC in September 2015 as Bizfi, a fully automatic online marketplace that offers an array of products from short-term loans to invoice financing. Since its inception, Bizfi has provided more than $1.6 billion to more than 29,000 small businesses.
New York Financial Press (NYFP): For someone in this space you have an interesting background. You played soccer in college at George Washington University, where you also went to law school, and you spent a summer at Oxford United, a division two team in the UK. So how did you get here?
Stephen Sheinbaum: I saw that I had lost a step so I had to turn my sights on what to do afterwards. I realized that I was really going to have to work for a living. Like many of my friends, we wanted to be agents. I worked for the NAFL [North American Football League] and the NFL. I was told that if you want to be an agent, go get either a law degree or an MBA. I decided to get a law degree. I graduated law school in ’87 and then the stock market crashed. Initially I wanted to go into real estate. I practiced for a while and I ended up enjoying it. I became general counsel of a company, and I really cut my teeth in the business world. They asked me to run a division and then run a company in a totally unrelated field. We bought ships and I handled all of those financings. I was lucky enough to spend almost two years working exclusively with investment bankers every day.
NYFP: What came next?
Stephen Sheinbaum: While I was general counsel, I sold my interest in the ship-building company and opened up my own law firm in New York. I grew up as a litigator but by this point I was doing a lot of fundraising, putting deals together, vetting deals, sourcing deals for investors. Then I came up with this concept, raised a bit of money and went into this business.
NYFP: What was your inspiration?
Stephen Sheinbaum: When I was practicing law, I was representing a lot of celebrity chefs and other small business owners as well as credit-card processors. I realized there were a bunch of very smart entrepreneurs who were great topline guys but couldn’t really manage a business. If I could have these small business owners give their merchant processing to my other law clients, and they would instruct that other processor to send me what amounted to debt service every day out of their gross credit card batches, then I was changing the whole paradigm because I didn’t have to worry about getting my investors paid. I would just collect it automatically. I would sweep it. Then someone in the space came to me and asked me to raise some money for them, which I did. But I couldn’t cut a deal that I thought was fair for the investors. In the interim I thought I had learned what the business was. That deal worked. Then, around three or four months later, the investors came back to me and said, “Why don’t you stop building value for other people and go try to build a business?”
NYFP: So you launched MCC in 2005. What was the original idea?
Stephen Sheinbaum: Think of us initially as just a balance sheet finance company. We fund what’s inside our deals—what’s inside our credit boxes—like every lender does. But over the years, our ability to generate demand exceeded our balance sheet. We had too much demand. I started the business with $2 million of debt—that’s how the business was first capitalized—and we’ve grown fairly nicely. I didn’t know what to do with the extra demand.
NYFP: That’s not the worst problem to have. What was your solution?
Stephen Sheinbaum: I started doing business with my competitors, saying, “Look, I have this extra demand. I know I’m a competitor of yours, but I have this good demand that you want, so you may as well take it from me. I want to work with you and against you. I know you’re going to look at me with a jaundiced eye, so the deals I give you are really going to have to perform.” As that went on, we grew our capital base. What ended up happening is that I was building up a set of products that was much wider than mine and wider than my competitors. We each had our own products, but I had everybody’s products available to us. I saw it become a competitive advantage because it gave us flexibility. If someone did not want to deal with an aggregator or a broker, we just played lender. If someone wanted to just monetize the demand, or get the most bang for the buck and have a one-stop shop, we were able to do that, too. It was a way for us to differentiate ourselves from our competitors.
NYFP: What do you mean?
Stephen Sheinbaum: I would pitch, “You could go and develop relationships with 20 people, or you could develop one relationship with me. I have those relationships with 20 people, and I drive so much lending demand that you can’t get the pricing I have.”
NYFP: So how did MCC become Bizfi, which some call a “Kayak” platform?
Stephen Sheinbaum: MCC was working well but we didn’t think our name presented us in a manner that we wanted, so we rebranded. We’ve always been a very tech-centric company and so we decided to bring it all online, which is Bizfi, a site where business owners can come and input their data. We focus a lot on reducing the number of keystrokes that business owners have to input. We’ve integrated with 15 different finance companies, ranging from SBA lenders to equipment finance guys. We present all those offers to the merchant, and we’re showing our offers side by side with that of our peers in a very agnostic manner. To me it’s a little presumptuous to think that I’m going to be able to provide all the financing that a merchant needs. But if I can go to a merchant and say, “Hey, look, between myself and all the partners that I’ve integrated with, I can be a one-stop shop for you, whether your credit is really strong or really weak, whether you have collateral or you don’t. Whatever it is, I’m here for you and I’m going to simplify the whole process.”
NYFP: What sets you apart now from your competitors?
Stephen Sheinbaum: Bizfi is the only business out there that truly has the ability to fund and to aggregate. If you go to Funding Circle, OnDeck or Kabbage, for example, they have what’s in their own credit box. But they don’t have the ability to monetize anything that’s outside it. We have the ability to have just our product or any product.
NYFP: Do you want banks to disappear?
Stephen Sheinbaum: I don’t want banks to go away. I want to collaborate with banks. I don’t want to compete. I don’t consider myself a bank. I tell them, “OK, you’re a bank. You have all these people who come into your business and you only fund 5 percent or 10 percent of them. What are you doing with the other 90 percent? They need money. You want their deposit accounts. You want to sell them insurance and 401(k) s and all that other stuff. So, let me keep them with you, and we’ll provide them the financing that they need, and you’ll make money on it.”
NYFP: How do you regard the big institutional lenders?
Stephen Sheinbaum: I don’t really blame the big banks because 2008 and 2009 were really devastating. We saw it coming so we tightened the reins, we pivoted and changed the way we underwrote a little bit, and then we came through. Sometimes you have to buckle down and tighten up, and that’s what we did. After [the Great Recession], you have new regulation legislation that was passed which has made it increasingly harder for big banks to do business—and they have long memories. In the interim, in this space, we’re all much more technology driven and focused. We’re smaller, too, so therefore we should be much more nimble. We can approve loans in a matter of seconds now. A bank can’t do that. Now, we’re more expensive, but that’s great because we have banks on our platform. If someone can qualify for a bank loan, I want them to. But a bank is probably not going to give someone all the money they need. If they need more, they can come to us for the balance and we’ll try to help them.
NYFP: What’s your lending range?
Stephen Sheinbaum: We go from $5,000 to $500,000.
NYFP: Is there one customer that you’d like to single out as a good example of what Bizfi does best?
Stephen Sheinbaum: There’s a guy who runs a business in Ludlow, Vermount, called The Killarney, an Irish pub. He was one of our first customers and he’s still with us. He owned a restaurant at the bottom of a ski resort, and his business was very seasonal. I think we’ve given him 18 or 20 advances since 2005. It went from him needing working capital to get through a slow season to being able to refurbish his place so he could do more business in the off-season, to his landlord going bust and him needing money so he could actually buy the building and not lose his place because it was going to be sold in bankruptcy court. If someone else had bought it, he would have been out of business. It’s a tremendous story. He’s fantastic. We’ve had guys who’ve gone from owning two franchises to owning 17 or 18 franchises without having to take on any additional partners. There’s just a ton of stories.
NYFP: What’s your vision for Bizfi?
Stephen Sheinbaum: We really want to become one of the leading finance solutions for small businesses across the country and then internationally. There are tremendous opportunities in Asia, where we see ourselves having first-mover advantage. But basically we want to continue to build out our platform and continue to have financing partners added to our platforms so we can offer business owners more and more options. We ourselves want to continue to create longer term, lower cost, easier to use products for the businesses. The more parties that we add to our platform, the better the resources should be for business owners; the more business owners we drive to the platform, the more financing partners will want to become part of it.
NYFP: Do you have a message for small business owners?
Stephen Sheinbaum: Small businesses need to understand that there is a ton of money out there available for them. There really is—much more so than they understand or appreciate. They should come to the site and we’ll help them get the financing they need, whether it’s with us or with someone else, but we’ll help them. It’s what we’re here to do.