EKMH Innovators Interview Series
A new interview series spotlighting global tech influencers, disruptors, visionaries, and of course, innovators.
This week digital small business lender Idea Financial successfully closed a $70 million warehouse facility with Cross River Bank, the noted banking service provider for fintech companies. The new facility -- Cross River’s first commercial warehouse facility --- was originated by Cross River’s Strategic Financing Solutions Group, a specialized team focused on providing warehouse, forward flow and direct lending services to empower the growth of fintech lenders.
“This financing will allow Idea Financial to scale and marks the beginning of a very important strategic relationship between Cross River and Idea Financial,” explained Idea Financial Co-Founder and CEO Justin Leto. Larry Bassuk, Idea Financial Co-Founder and President, added, “With this facility in place, Idea Financial will continue providing competitively priced financing solutions so our small and medium sized business clients can grow and thrive.”
I reached out to Idea Financial Co-Founder & CEO Justin Leto for more information about the new Cross River Bank partnership, Idea Financial's genesis, his strategic vision and scaling plan for Idea Financial. Leto also shared his U.S. fintech predictions and advice for those considering considering a career in fintech. Be sure to check out his book recommendations!
Our interview follows:
EKMH: Please share more information about the genesis of Idea Financial and Level Insurance. How are the two companies aligned?
Justin Leto: There is no direct relationship between the companies aside from Larry Bassuk and I being equity shareholders in both. Larry and I are both trial lawyers who have been practicing in Florida since 2007 and 2003, respectively. We came up with the idea to insure contingency lawyers for any losses they experience when they take a case to trial and lose. Since these plaintiff lawyers typically spend their own money on the hefty costs of litigation, we sought to solve the problem that exists when there is a trial loss and the investment is lost. Through that process, we became interested in insurtech and fintech.
We became aligned with a European banker that provided us with advice on the insurance company. That led to discussions about starting a tech-enabled small business lending company that sought to finance merchants that may otherwise be bankable, but who desired the speed and efficiency that fintech lenders provide.
With the goal of providing a best-in-class line of credit for small- and medium-sized businesses, we launched Idea Financial. We initially worked out of our law firm conference room as we built our team. The evolution of the business has led us to our first domestic warehouse facility and we are thrilled to call Cross River Bank our partner as we scale.
EKMH: Why Cross River? How did you sync with Cross River’s Strategic Financing Solutions Group? What is your strategic vision and scaling plan?
Justin Leto: When Larry and I decided it was appropriate to seek external financing, we spoke with several trusted advisors, one of whom referred us to Cross River Bank. Given Cross River Bank’s keen interest in the fintech space and their impressive partnerships with other fintech leaders, they seemed to be a natural fit.
As we worked with their team through due diligence, we were even more impressed. They are an incredibly intelligent group and understand the fintech and small business lending space. In addition, they share our interest in a true partnership rather than being just a funding source. The fintech world should take notice of Cross River Bank. They are a force.
EKMH: Do you have plans for international growth and global partnerships?
Justin Leto: We have learned that we should never shut out opportunities. However, at the moment, we are focused on perfecting our technology and operations so we can fund American businesses.
EKMH: What obstacles has Idea Financial faced since launching? Which solutions have you and your team implemented to address these concerns and ensure fast and flexible financial solutions?
Justin Leto: Starting a fintech small business lending platform is filled with everyday challenges. Our initial challenges were with quickly developing technology that could fund small businesses quickly enough to be competitive with others in our space. At first, our team did an amazing job of making it appear seamless to the users while the back-end was incredibly manual. Our team was diligent and careful, ensuring that although the process was manual, it was still efficient.
Over the course of two years, our technology has really evolved. We now have a fast and reliable underwriting system that our data science and tech teams developed. We have a customer portal that is interactive and user-friendly. And we have underwriting formulae that ensure we keep our defaults low.
The biggest internal challenge we will continue to face is recruiting talent. With US unemployment at all time lows, talent in the areas of tech, finance, and sales is not easy to find. Fortunately we have a team that genuinely enjoys being around one another, so we think that culture will help.
EKMH: What is Idea Financial’s niche in fintech? How do you plan to grow?
Justin Leto: We see ourselves as an alternative lender for otherwise bankable merchants. We are seeking to help businesses grow without saddling them with unsustainable debt. We spend a lot of time and money on our user experience and we are always looking to make that better. We plan to grow through a combination of our ISO relationships, direct marketing, and strategic partnerships. With this infusion of capital, we now have room for all of those initiatives.
EKMH: Which other types of fintech is Idea Financial incorporating into its platform? How do you see Idea Financial growing in the future?
Justin Leto: We plan to launch a term loan this summer for two reasons. First, for merchants that may not qualify for our line of credit, the term loan can act as an introductory product which can be converted to a line of credit after we have seen consistent payment history. Second, we plan to offer the term loan as a side-by-side product to a line of credit, allowing merchants to fund a large project with the term loan while also having the flexibility of the line of credit. Our hope is to continue to grow responsibly and to become a top lender to US Small businesses.
EKMH: What are your thoughts on fintech in Miami?
Justin Leto: Miami is our home. We love this town and we think it's a great place for Idea Financial to call home.
EKMH: What are your overall predictions for US fintech? What are the biggest issues facing the sector?
Justin Leto: The biggest challenges facing the industry are regulation, stacking, and macroeconomics.
Regulation – The entire industry remains largely unregulated. This is certain to change. At Idea Financial, we have a California Lenders License and are prepared for any other regulatory requirements that may arise. Frankly speaking, it would be a good thing for the industry to have some rules to abide by.
Stacking – Stacking is when a small business takes multiple loans from multiple lenders. This can cause a business to become insolvent and leads to greater defaults for lenders. Regardless, lenders continue to allow stacking and merchants continue to take on more debt than their business can sustain.
Macroeconomics – A recession would cause problems for the entire industry. It isn't a matter of if, it's a matter of when. At Idea Financial, we use sophisticated early warning systems that will help to mitigate losses in the event of an economic downturn.
EKMH: What advice do you have for those looking into fintech?
Justin Leto: This is not for everyone. Our Director of Finance put it best: “You really need to love finance to do this work.” The hours are long, the stress level is high, and there is a lot of competition. Fortunately, we love what we do. Idea Financial has a remarkable team of professionals who come to work every day looking to make the company better than what they left the night before. Watching this company grow has been the greatest experience of my professional career.
EKMH: And finally, which books do you recommend for summer reading?
Justin Leto: The Seven Spiritual Laws of Success by Deepak Chopra. I have read this book at least 20 times. It is intuitive, thoughtful, and simple. I have given this book as a gift to many people. Whenever my wife thinks I seem unbalanced, she says “Read your book!” My book is the Seven Spiritual Laws of Success and it always brings me back to center.
Shoe Dog by Phil Knight is inspiring for any entrepreneur. The challenges that he overcame to make Nike the behemoth it is today will inspire anyone.
Lead the Field by Earl Nightingale was originally published in 1968 and is a book that provides advice for success. After 50 years, the message remains relevant and it is a must-read for anyone who is interested in being a leader in business.