B2B Payments

CAN Capital’s Risky Strategy

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It was CAN Capital’s ambitious growth plans that led the alternative SME lender to eventually falter, according to a new report from The Wall Street Journal.

The publication said Monday (Jan. 16) that CAN Capital’s recent struggles can be attributed to its growth push initiated about five years ago. The company was forced to stop making new loans last year and put its CEO, Daniel DeMeo, on leave. The issues, sources said at the time, could be attributed to problems in how CAN Capital reported delinquencies among its SME borrowers, leading the platform to breach agreements with major lenders, like Wells Fargo.

It all stems back to 2010 or so, when CAN Capital launched ambitious growth plans to enter into new markets. A spokesperson for the company confirmed at the time of top-level shakeups at the company that “it became clear that our business has grown and evolved faster than some of our internal processes.”

While CAN Capital’s decision to bring on DeMeo initially proved a positive one, leading to hundreds of millions in debt financing, its decision to position itself against newer alternative lenders meant a change in its lending process. According to reports, the company was allowing borrowers several extra days to make payments past agreed-upon due dates. Called “grace days,” these periods are common in the merchant cash advance space, in which CAN Capital first emerged. But in other types of business lending areas, reports noted, it is less common; instead, any payments made past due dates mean loans must be declared delinquent.

That shift into other areas of SME lending was what led CAN Capital to falter by not implementing revised reporting policies and practices, reports said. WSJ isn’t the first to make this connection. Late last year, American Banker drew similar conclusions.

“As the board and our leadership team conducted our business reviews and looked at how we can best position the firm for future growth, we self-identified that some assets were not performing as expected and that there was a need for process improvements in collections,” the company said in a statement to the publication at the time.

CAN Capital is in the process of righting the ship. The company hired Realization Services, a restructuring consultancy firm, to help negotiate with lenders. The platform is also reportedly working with Jefferies Group to explore other routes to get back into the good graces of lenders and borrowers.

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