Specialty Capital News and Views: Feb 1, 2024

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We trust everyone welcomed 2024 with enthusiasm!

The positive feedback on our rebrand is heartening – please continue to share your thoughts! Our commitment to refining our processes, from submission to pricing and final underwriting, remains unwavering. The primary objective is to ensure a seamless experience for both our small business customers and referral partnerships.

In this update, we want to share some key insights. We’ll discuss ENVA’s earnings, insights from the recent Fed Rate Decision, and our reflections on the current competitive landscape.

Federal Reserve Update:

Yesterday, Jpow and Federal officials maintained interest rates for the fourth consecutive meeting. Our December write-up highlighted market expectations for aggressive rate cuts in 2024, leading to a year-end rally. Following recent communications, it appears the market is adjusting its expectations for future rate cuts.

During Powell’s press conference, the Fed emphasized their data-driven approach to policy. They acknowledge inflation risks and note a moderation in job data from summer peaks. Powell hinted that a March rate cut is unlikely, maintaining a cautious stance. As of now, we don’t expect a Fed Pivot.

ENVA’s Remarkable Q4:

In other news, ENVA reported a stellar Q4 with a record $930 million in SMB originations. The SMB vertical, including Ondeck and Headway, now constitutes 62% of their overall portfolio. Learning from charge-offs in late 2022, ENVA embraced machine learning tools to refine their approach, resulting in aggressive growth in Q4. Notably, despite cutting referral partnerships, they’ve expanded origination volumes, showcasing their competitive edge.

Charge-offs reduced in the SMB portfolio in the fourth quarter. In our view, ENVA will continue buying up lots of market share in 2024 as they continue to be well capitalized.

We also observed a surge in new entrants in the merchant advance funding space over the past three months. Incumbent funders must maintain vigilance and pricing discipline in the face of this increased competition. Differentiation is crucial, especially for new players, who must be bold in their offerings and forge uncomfortable but necessary relationships. Term and rate is the name of the game.

Changing Dynamics in C/D Paper Space:

Competitiveness in the C/D paper space has reached new heights. High-risk funders have extended term curves, with those maxing out at 6 months now pushing to 9 months. The competition among both funders and brokers is at its peak, making it essential for market participants to stay agile and disciplined in their pricing strategies. More importantly, relationships are key.

As the market landscape continues to evolve, we are poised to navigate these challenges with the same dedication and agility that has defined Specialty Capital.

Let’s continue to embrace the opportunities and challenges ahead! Happy Funding

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