David Gens, the CEO and Founder of Merchant Growth, traces his entrepreneurial journey from a small apartment operation to becoming a leader in Canada’s fintech space with CanadianSME Small Business Magazine. Driven by a desire to emulate his family’s entrepreneurial spirit and spotting an opportunity in the non-bank business lending sector, David embarked on a mission to make financing more accessible for small businesses. Leveraging technology, Merchant Growth has transformed the lending process, offering a streamlined, data-driven approach that surpasses traditional banking methods in efficiency and accessibility. David highlights the challenges small businesses face with conventional banks and how Merchant Growth’s innovative model serves as a viable alternative. Furthermore, a significant collaboration with Fortress Investment Group marks a leap towards amplifying support for small businesses in managing debt and seizing growth opportunities amidst economic uncertainties. Looking forward, David envisions further advancements in small business financing, with Merchant Growth at the forefront of fostering growth and resilience in Canada’s entrepreneurial landscape.
David Gens is an award-winning business leader who is passionate about helping Canadian small businesses grow and find the financing they need. David is the founder and CEO of Merchant Growth, which grew from its humble beginnings in his apartment to offices in both Toronto and Vancouver. He now leads one of Canada’s largest online small business finance companies.
David, your journey from starting Merchant Growth in your apartment to leading one of Canada’s largest online small business finance companies is incredibly inspiring. Can you share what motivated you to start Merchant Growth and how you navigated the challenges of scaling from a small operation to a major player in the fintech space?
To be quite honest, my motivation started with a burning desire to be an entrepreneur. I come from a family of entrepreneurs – my father, brother, and uncle all had their own companies. So I was looking for a business idea worth executing on, and I read an article about the growing non-bank business lending industry in the United States back in 2008.
I found the fundamentals compelling. Traditional banks were becoming increasingly strict especially given the financial crisis that was unfolding at the time, and digital adoption was in its early stages – though the idea that over time business owners would no longer walk into a bank branch to get credit seemed plausible. And lastly, I felt like this business idea played to my strengths – my degree in finance and my work experience in private equity – so I got to work!
Over time, I fell in love with the mission itself – which is to level the playing field between small and large businesses, by providing the most convenient and accessible financing experience for small businesses.
With your passion for leveraging technology to support small businesses, how has Merchant Growth’s tech-driven approach transformed the financing process for your clients? What makes this approach more advantageous compared to traditional banking methods?
Our mission is to bring the most convenient and accessible financing experience to Canadian small business owners, and technology is key to both the convenience and accessibility aspects.
Firstly, convenience. We start with a slick and simple online application. But the real magic is behind the scenes, where the application pulls bank transaction data, credit bureau data, scans for online presence, and completes a variety of validations / fraud checks. These data integrations allow us to ask as few questions as possible in the application process while getting the information we need to responsibly provide credit.
Secondly, accessibility. Now that we’ve leveraged technology to conveniently obtain the information we need, how do we ensure we can say yes to as many borrowers as possible? This is where we use data science – namely machine learning – to build and constantly iterate on a highly sophisticated risk model. This model is able to accurately predict the expected loss on each loan based on the information obtained, and dynamically price risk so that we can economically serve as many borrowers as possible.
This is different from the more “one-size-fits-all” policy-driven bank business lending models and is, of course, much easier to work through as an applicant. We’ve taken a process that takes weeks or even months and condensed it into minutes or hours.
What challenges do small businesses face in securing financing through traditional banks, and how does Merchant Growth offer a viable alternative?
The challenges are how long it takes to obtain credit from a bank, as well as how difficult it is. Businesses with more than $5 million in sales can typically go to the commercial banking team and get more customized service for their credit needs. But smaller companies are either offered small amounts of credit or require real estate collateral with ample equity to be approved. Banks are regulated institutions with a low tolerance for risk, so Merchant Growth offers convenient and accessible financing in a niche credit segment where the banks are not particularly active.
Your recent collaboration with Fortress Investment Group introduces a significant $300 million forward flow facility for CEBA loan refinancing. How do you envision this partnership impacting Canadian small businesses, particularly in navigating the challenges of debt management and capitalizing on growth opportunities in the current economic climate?
It was important to us that we have the capital backing to provide as much CEBA refinancing as the market demanded from us. We had spent the better part of a year building custom technology to specifically address CEBA refinancing, so it would have been quite a shame to miss out on opportunities simply due to a lack of capital.
Bigger picture, our Fortress forward flow facility is the biggest financing facility ever put in place for a Canadian non-bank small business finance company. I believe it has put Canada on the map internationally and Fortress’s validation of our business – specifically our underwriting and servicing capabilities – is certainly a positive signal for current and potential partners and stakeholders in our business.
What this means for Canadian small businesses is better access to capital. The development of capital markets and lending in particular has played a huge role in economic growth over thousands of years, and it will continue to do so as we find more ways of connecting investor savings with the capital needs of businesses and consumers.
Large businesses have had the advantage for far too long, as they get courted by banks and have CFOs to navigate a multitude of options available to them. By allowing small businesses to access credit when they need it, they can pounce on opportunities and invest in growth, ensuring that we live in a world full of entrepreneurs and small businesses.
Looking ahead, what innovations or trends do you foresee in the future of small business financing? How is Merchant Growth preparing to adapt to these changes to continue supporting the growth and resilience of small businesses across Canada?
I believe it is still very early days for non-bank small business financing. Our products will evolve to address a wider range of businesses and circumstances. As we continue to focus on our mission of convenience and accessibility, it will only get easier to work with us in the future. Additionally, the points at which our credit products can be accessed will evolve. For instance, rather than finding us and starting an application, our Tabit product is ensuring that business owners see our financing options at the point-of-sale when purchasing from their suppliers. Our goal is to show up when small businesses need us and to make life easier for them. Ultimately, we are in the business of saving them time and stress.
There is no question in my mind that the non-bank small business financing industry will be much larger, more sophisticated, and will deliver more value to small businesses 10 years from now!
