Head of Business Development
Dwight Funding
The transition to a more e-commerce-focused economy has been underway for more than two decades. At this point, it is no longer a trend but a permanent (and dominant) piece of the consumer spending landscape. Such a reliance on e-commerce will continue to call for a reimagining of how asset-based lenders provide capital to businesses that sell their goods virtually. In a Q&A for ABF Journal, Derrick Wong of Pacific Premier Bank spoke with Jessica Bates of Dwight Funding about the ins and outs of asset-based lending to e-commerce brands.
The exponential growth in e-commerce sales also has meant an increase in the number of businesses that sell to their customers — some exclusively — via e-commerce. This growth has created a new crop of e-commerce/direct-to-consumer (DTC) borrowers that generate little to no commercial accounts receivable (as they do not sell to their customers on commercial terms and are usually paid by credit card) and whose inventory is the centerpiece of their commercial collateral.
The growth in e-commerce and the amount of e-commerce borrowers begs questions for commercial finance lenders:
- How are commercial finance lenders pivoting to accommodate growth in the number of e-commerce borrowers and their demand for credit solutions?
- Is the credit and collateral analysis for an e-commerce borrower similar to the analysis for evaluating a brick-and-mortar retailer?
- What is the outlook for e-commerce borrowers and lenders in the next 12 months to 18 months?
Director of Commercial Banking
Pacific Premier Bank
Before diving into the particulars of providing senior debt solutions to e-commerce and direct-to-consumer businesses, can you tell us more about Dwight Funding?
Dwight provides revolving lines of credit ranging from $500,000 to $5 million to lower middle market businesses with annual sales ranging from $3 million to $75 million. The company is headquartered in New York City with clients located throughout the U.S.
Bates: Dwight Funding was one of the first movers in developing tailored commercial finance solutions for lower middle market companies that sell direct to consumer via e-commerce. Some of the tech banks identified a need and found a solution for larger e-commerce businesses, but due to the increase in e-commerce payment processing platforms such as Shopify that reduced barriers of entry to selling direct, there was a growing segment of SMBs (small and medium businesses) in this market.
We then created a framework to evaluate and underwrite these business profiles and began filling the funding gap for these borrowers. Over time and with more data points, we have been able to create asset-based structures that maximize availability for our borrowers while also ensuring that Dwight Funding is effectively and prudently monitoring the underlying collateral.
Bates: As asset-based lenders, we’re still collateral focused. However, we have developed a unique way of underwriting the health of a DTC business and its collateral. This enables us to provide inventory only or inventory heavy revolvers to businesses of this profile.
How do you foresee the lending landscape evolving for e-commerce borrowers and lenders in the next 12 months to 18 months?
Lenders will need to evolve and tap into available data to meet these changing needs. My sense is that there will be more than enough growth in e-commerce and that there will be plenty of opportunity for additional lenders to enter and thrive in this space.
Asset-based lenders’ consistent focus on underwriting collateral on par with — and at times with precedence over — cash flow allows them to remain nimble and to deliver businesses (e-commerce and otherwise) with the creative working capital solutions they need. •
The views, thoughts and opinions expressed for this article are those of the participants. They do not purport to reflect the views, thoughts or opinions of Pacific Premier Bank. Pacific Premier Bank makes no representations as to the accuracy, completeness, correctness, suitability, or validity of any information presented and will not be liable for any errors or omissions in this information. Further, the information presented is for general informational purposes only.
Jessica Bates is the head of business development for Dwight Funding. Derrick Wong is the director of commercial banking for Pacific Premier Bank.
