“LQD Business Finance, a Chicago-based small business lender, is seeking scale to improve the operating efficiency of its tech-enabled lending platform, said George Souri, CEO, and Brian Reshefsky, director of capital markets.
Having established a tech platform for lending, LQD is now turning to M&A to get scale quicker, Reshefsky said. Since early this year, Reshefsky started at this role leading the M&A practice, and LQD has held talks with about a dozen potential targets, he said. Valuations in the space had been “way too high” and in the current condition, sellers’ expectations may be dampened, which may cause some not to pursue a sale at this time, he said.
“It (the coronavirus outbreak) may impact the valuation, but it won’t impact our strategy,” Reshefsky said. “We believe very much that other businesses will be far more profitable on our platform.”
The company may raise equity financing to support deals, but so far has not set a timeframe for the raise, Reshfsky said. According to Pitchbook, it raised USD 30m in debt from Route 66 Ventures in 2015, a USD 4m Series A led by Fintech Ventures Fund in 2016, and another USD 10m round in October 2019 from unspecified investors.
LQD is pushing to get money into the hands of small and mid-sized businesses more quickly, Souri said, as they struggle with disruptions caused by COVID-19. Tech-enabled lenders are better-positioned to deploy SMB loans faster because of automated solutions, he said.
LQD can deliver loans of up to USD 10m in as little as 10 business days, according to its website. In comparison, it generally takes 60 to 90 days for the Small Business Administration to process loan applications. But SBA also provides expedited financing for disaster-related purposes, with a turnaround time of five to 10 days.
“It’s like the ambulance is showing up four hours after the patient has already died,” Souri said.
LQD started underwriting loans in 2015 with its own balance sheet, and started selling loans last year to banks and large institutional private debt investors, Souri said. The interest from the underwriting model still accounts for the majority of revenue. Total loan volume is in the hundreds of millions of dollars, Souri said, but declined to specify an amount.
This year, LQD expects to add USD 75m to USD 150m in book value through M&A, Reshefsky said. Before the COVID-19 outbreak, lenders had traded for a 15% to 25% premium to book value, he noted.
Instead of focusing on a single product line, LQD covers a broad range of specialties, from asset-backed loans backed by accounts receivables, inventory, contracts, cash flow and other collateral, to term loans and mezzanine debt. LQD would look at lenders both in asset-backed loans and factoring that focus on mid- to up-prime loans as opposed to subprime loans, Reshefsky said.
LQD has about 50 employees.
By Yizhu Wang”