E40: Asset-Based Lending with Marius Silvasan

Foreign. This podcast is brought to you by Ginsler Wealth. The information discussed today is meant to be general in nature and not tailored to your specific investing circumstances. This means that you should talk to your regular Gensler wealth advisor or your own advisor before acting on any information we discuss today. Nothing in this podcast is intended to be a solicitation and past performance does not guarantee future returns. Today we discuss a type of private debt which some may consider a dirty word in Canada these days, but don't worry, we'll keep this podcast clean for the children. Today on the Unlimited podcast we speak with Maria Silvason, CEO of E Capital where we're going to dive into the world of private debt, specifically factoring and asset based lending. What the heck does that mean, how it works, and why this type of lending landing may be less risky than it sounds. Let's go. Well welcome everybody to another episode of the Unlimited podcast. This is a continuation of our investment theme or themes because as many of you know, we took a little bit of a break from investments and talked about a whole bunch of other fun stuff. Today we're going to talk about a business that falls into the private debt category and on the one hand, private debt has been all the rage with investors and some firms that are marketing private debt strategies. On the other hand, as I'll hopefully get my guest's opinion on, private debt has also become a tiny bit of a dirty word in some cases with a number of private debt funds in Canada running into legal and regulatory trouble or halting redemptions or winding down completely. I think you'll hear from our guests. This firm is a little bit different and the company is called E Capital and E Capital is a tech enabled specialty finance company focused on providing working capital solutions to small and medium sized businesses in the US, UK and Canada. E Capital finances more than 6,000 clients through factoring and asset based lending facilities and we will explain what that means and provides ancillary services such as credit cards, fuel cards, bill pay and other treasury services. Business was founded in 2006 and employs more than 700 people globally today. Very excited and appreciative to have Marius Silvason, E Capital CEO with us. So hi Marius, thank you for joining.

Thanks. Thanks for having me Brian. Happy to be here.

My pleasure. Pleasure is all ours. So let me give a quick intro to you and then we'll actually turn it back to you because maybe you can elaborate. Marius has over 30 years of experience in structured finance, syndication and mergers and acquisitions and is the leader in the finance industry and the driving force behind E Capital's growth which hopefully we'll learn about. With a strategic M and A approach, he has successfully united companies to build a strong brand in alternative finance. Marius has led the development of a technology platform which also will be very interested to hear about transforming financing for small to mid sized businesses and expanded E Capital's reach to the UK and Canada. He holds a BBA and MBA from Ash Este University in Montreal, as they pronounce it. So again, thank you very much for being here. Wondering, I've given a quick intro but can you give a little bit of background just on yourself and your journey from Montreal Ashesay all the way through to guess now you're based in Florida running a very large lending business.

Yes, sure, absolutely. Brian. I've been an entrepreneur for over 30 years at this point, been involved in a number of businesses. I went to school in Montreal, did my MBA at the HEC University and got involved into business shortly after. Initially I was involved more on the telecom and wireless side of things, owned a variety of businesses in that space in those industries, grew businesses, bought businesses, integrated businesses, brought one of my holdings company from private to public and then in 2006, 2007, decided to move from, from Montreal to Miami, decided to work a little less, sold a lot of my telecom and wireless assets and then got involved or got introduced to what was E Capital in much, much smaller business at that point. Point. And I really took a liking into the business and took a liking in terms of my own ability to help SMBs. Because you know, that's a background, that's an environment I've lived with. I know SMBs. I know the challenges SMBs are going through for listeners.

What's SMB again?

Yeah, SMB is small and mid sized businesses. So typically those would be businesses that I would say generate less than $150 million in sales a year. And when you, when you look at the US and Canadian environment, most businesses are really SMBs. I mean the economies, the US and Canadian economies are driven by SMB. 99% of the businesses within the US and Canada are classified as SMBs. And those businesses have a lot of needs, financing and other needs that they need in terms of being able to grow and deliver their products to the market. And SMBs are a critical component of how the economy is working, how the economy is doing. So a healthy SMB environment is a healthy economy, right?

Yeah. And actually we'll touch a little bit later on what you're sort of seeing and feeling on the economy because you Deal with so many of these small and medium sized businesses, probably have your finger on the pulse of what's going on. So we always love to hear that. So what is the business of E Capital? What do you do for these SMBs?

Yeah, so E capital really helps SMBs achieve their goals. And how do we help the SMBs achieve their goals? Is, is one of the main sources is is providing the adequate working capital. As people know, you know, as you grow your business, having the right amount of cash, having the right amount of capital to be able to buy inventories, be able to produce or to, or to convert this, this inventory into finished goods, being able to sell it, being able to distribute it, are all key components to the SMB success. So E Capital, we built through E Capital basically a digital platform that allows US to help SMBs by providing them the maximum amount of financing and really helping them achieve their business goals.

Okay, so at the heart of it, utilizing this technology platform you've built, the core business is essentially lending to these SMBs in a couple different ways. Is that fair statement?

That's a fair statement. So we provide working capital facilities to SMBs and what that means is we're basically lending monies to the SMBs based on the value of their assets. And specifically what this means. Is it pretty. The lending takes a few different forms, but the two primary forms are one is factoring and then the other one is asset based lending. So what is factoring? So what factoring is, is basically the act of us purchasing accounts receivables that were created by an SMBs and funding those accounts receivables to the SMBs immediately and us waiting to get paid by the ultimate account. So as an example, you have an SMB selling a product to Walmart. Walmart says I'll gladly buy your product, but I'm, you know, once I receive it, I'm, I'm going to pay you on 60 days. The SMB is happy to deliver products to Walmart as much as Walmart wants to buy. But unfortunately they, they can't wait the 60 days to, to get paid because they need to buy our inventories, they need to produce other goods, they need to make payrolls, they need to pay rent. So therefore they come to companies such as ourselves and they sell us their accounts receivables. So we buy those accounts receivables, we immediately pay the SMBs for the value of those accounts receivables and then we wait the 60 days to get paid by Walmart. So it's an efficient way for the SMBs to liquefy their assets in exchange of cash and obviously utilize that cash towards being able to purchase new product and new goods. So that's one aspect of it. The other aspect is the asset based lending aspect. What is asset based lending? Well, asset based lending is us lending against the value of an asset. So factoring is I buy a receivable and asset based lending, I lend against the receivable. It could be the same receivable to Walmart for the same value, let's say $100. But instead of me buying it and waiting to collect that receivable from Walmart, I'm going to advance monies to the SMBs in exchange of them pledging their assets to me. And as funds come in, obviously that pays down their revolving balance and then they can borrow based on them generating new assets. So those will be the two types of financing. Again, the main driver is typically accounts receivables and some other assets. But we either buy the receivables in a factoring transaction or we lend against the receivables in an asset based lending structure.

Okay, perfect. And when you buy the receivable, I love your example of someone selling to Walmart. It's something that tangible people can get their heads around. I hope so. Someone sells something to Walmart, they issue a receivable or an invoice to Walmart that they're going to have to pay them. Obviously they got to wait 60 days. Walmart probably wants them to wait even longer because the more power the buyer has, the more they can make you wait. They can't wait. So you come in and you buy the receivable. How are you buying it? And what I mean specifically is you're not going to give them 100 cents on the dollar on that receivable, I would imagine because you have to make the money somewhere. How does that work from again, the financing or the cost perspective to the person that you're buying the receivable from?

Yeah. So let's go back to the example. Let's say this invoice that was created for those goods is $100. We will typically advance the SMB anywhere between 80 to $90 immediately on that account receivable. And then we're going to keep a reserve and then the reserve is there to basically protect us against any dilution. Meaning if Walmart receives an invoice for $100, there may be some marketing credits that they're entitled to take. There may be some credits related to merchandise that is the maybe defect or is returned. And therefore, you know, Walmart may end up paying $95 on this $100 receivable. So we keep a reserve and as we get paid on that receivable, then we release the reserve less our fees back to the client. So the client gets the bulk of the financing or the funding day one and then they get the balance penny depending on what that is at the time we get paid that receivable from Walmart.

Okay, got it. I mean you've given a little bit of color on SMB market. 99% of businesses are small and medium sized. But what other examples of maybe your, your borrowers, I guess you call them your borrowers. Think what other industries, what other types of businesses really utilize this service? I know as an example, not to answer the question for you, but me and my team traveled out to your big office in Orillia and walked through the entire process of your transportation factoring business. As part of our diligence in terms of working with you, which we do full disclosure to our listeners, what other businesses are calling upon you to help them in this type of way?

Yeah, sure, it's a good question. And, and again going back to, to what I stated earlier, which is 99% of the businesses are, are classified as SMBs. Our focus is on businesses that are selling to other businesses. So B2B transactions and then that represents roughly 60%. So of the, the 99% which in the US is around 28 million SMBs, you know, and of those 60% roughly are B2B. And I will tell you that of, of Those businesses over 50% have a hard time getting the proper financing from traditional financial institutions. And there's reasons why they're having a hard time getting the financing from, from those institutions. But those SMBs need the non banking, the non bank lending space to provide them the needed capital for them to be able to deliver their goods, buy inventories and operate within the economy. So there is a significant need in the marketplace for financing. And just to throw out a couple of numbers for the audience, the factoring market in the US is a market that is over $200 billion in size. The asset based lending market in the US is over $600 billion in size. And then when you look at the factoring market globally, it's a market that is over $4 trillion in size. So you're thinking about this, you're saying, well this is not just a few small and mid sized businesses that are utilizing the services of non banks. This is widespread and in fact is that the vast majority of SMBs are not being financed by traditional banks. They're being financed by the non bank lending sector. So from our perspective, you know, which cool are those businesses? Those businesses are in all industries, they're in all sizes. We finance businesses that generate from 10 $15,000 of sales a year to businesses that generate over 150 to 200 million dollars in sales a year. We finance businesses that are single owner operators to businesses that employ several hundred employees. But all of those businesses and everything in between needs money. They need financing to be able to operate. And those businesses rely on the non bank lending space to provide them with that capital.

Okay, gotcha. That's good. I appreciate the numbers because I was going to ask you that myself but you beat me to it. So we're going to run out of questions here because you're answering them all ahead of time. I'm just kidding. I started the beginning of this podcast saying, well, you know, private debt can be a dirty word because there's some issues and this and that. One thing I want to get, and I'm sure you'll touch on it as we talk for the next little while, is why factoring and asset based lending might be a little bit different than some of these other firms that have had some challenges. I think a very big piece to that, at least in my view, is, you know, and hopefully listeners have already caught on to this, it's not the borrower that's paying you back for that receivable that you lent again, it's Walmart. And I don't know if you work with Walmart, I'm just following your example, but it's actually Walmart that's on the hook to pay you back for that receivable. And Walmart, last I checked, is a pretty good company and probably has the cash to pay you back. So can you talk a little bit about that piece to the factoring and, and asset based lending that who is actually paying you back here and if and why that makes your, your loan maybe a little bit safer than it seems.

Yeah, and it's a very good question, Brian, because you know, the reality is looking at it from the outside, people come to me all the time and they say, well you know, you're, you're doing business in a, in a, in a risky environment. You know, SMBs and go out of business all the time. And that's true. SMBs come and go out of business for various reasons. They close, they go out of business, they can't provide the service, they decide to change industries, they sell. But the important part for us as a secured lender and what does it mean, us being a secured lender? Meaning we take first security interest over the assets we lend. So if we buy the receivables, we own those receivables. If we lend against the accounts receivables, we have a first security interest against those accounts receivables. So nobody's ahead of us. So that's an important component. But then even more important is who's behind those receivables. Yes, I may have a small mid sized business generating $100,000 in sales a year, but that business does sell to Walmart. And so what's my credit risk? Is it, is it the small SMB or is it Walmart? My credit risk, My credit risk is really Walmart because at the end of the day Walmart is the payer underneath that receivable. So if you go through our debtor list, which debtors are really our clients? Clients, and you look through the debtor list, you realize it's all Fortune 500 multinational. The reality is Walmart is not going out of business in 30 or 60 days. Amazon is not going out of business in 30 or 60 days and the variety of large debtors. So really what we're managing, yes, we're managing credit risk and we're managing SMB risk, but we're really managing business disputes, we're really managing fraud, we're really managing delusion, which are much more critical items for us to manage than actual credit risk. Because the reality is we're lending against an asset, a receivable that turns within 30 to 60 days. And what it means, it turns, it pays within 30 to 60 days. So it's an investment in a highly liquid asset. We know the value of that asset, we know the payment date of that asset. We've confirmed the asset with the third party obligor. We know the third party obligor is credit worthy and we have a proper system to be able to collect against those receivables and then fund the new ones. So really we're managing really as I said, not so much the S and B credit risk. We're really taking on the Fortune 500 companies credit risk and are really managing day to day business solutions, fraud and business disputes.

Right. Amazing. So yeah, I want to dive into that a little bit more, but maybe something just to make clear to, to our listeners, I know the answer to this, but I'll ask you the question anyway. Walmart owes your client your borrower the money for that invoice. Why couldn't the borrower just get paid from Walmart and then just run away with your money?

I would see the risk is minimal. And the reason the risk is minimal is because every time we buy a receivable, we notify the account debtor that we have purchased that receivable. So again, going back to our example, the SMB sold some products to Walmart, we've purchased that receivable, we'd have notified Walmart of our purchase. When we notify Walmart of our purchase, not only we have notified them of our purchase, we are also directing Walmart to pay the receivable into an E Capital account. Therefore the SMB doesn't touch the money. And if by mistake Walmart were to pay the invoice directly to the SMB, we have recourse against Walmart and Walmart is a credit worthy counterparty and therefore they will stand behind their obligations to pay us. So in this environment in which we are a secured lender, we lend against short term assets, those short term assets are backed by quality debtors and then we collect directly. It's a very tight environment, which is why we've, we are experiencing very minimal losses. When you're looking at the amount of financing we provide them. Again, just to offer the audience to talk about a couple of proof points, but we're providing over $15 billion US dollars of financing to our borrowers every year. It's a lot of money we're putting into the, that we're financing the SMBs, that we're providing working capital. That $15 billion worth of financing is against over 20,000 account debtors. We collect against all of those account debtors. Therefore we're receiving over a billion dollars in collections every month into our account. We're reconciling those collections, we're reconciling it back to every invoice of every one of our borrowers and then we're releasing excess reserves to those borrowers. So again, it's a very significant infrastructure that we've built. It's handling a lot of volume, we've built in a lot of technological capabilities around the platform to be able to automate a lot of the processes and make sure we're properly managing credit risk as we're handling this amount of volume. But in order to do it right, you got to invest in technology, you got to have the right people, you got to have the scale. And we've done all of that. That's why we've been so Successful.

Right. Okay, great. No, appreciate that. And let's, let's keep on that track technology and processes. How do you make sure that the invoices, the receivables that you're going to be factoring, how do you make sure those are real and valid? Or the other way answering the question is there's risk of fraud here. Maybe someone's desperate for money and makes up some invoices and sends to you or probably 20 other things that I can't think of, but you probably deal with on a day to day basis. What do you do to prevent it? What have you seen that you might have or that you caught to prevent issues? Just maybe a little color on that would be interesting.

Yeah, yeah. I mean, whatever we've seen, we probably have seen everything. But the reality is we're pretty good in catching it. So, you know, one of the important components as a, as a non bank lender, when especially, you know, as a non bank lender, we live and die by the quality of our collateral.

No.

So therefore it is extremely important for us to ensure that whatever collateral we're taking in, either that we're lending against or that we're buying is good collateral because that's how we're getting repaid. So obviously we go through a process. There's a diligent underwriting process upfront to bring the SMB on the platform and then there's ongoing diligence every time we fund a transaction. What does that mean? Well, there's a variety of digital means upon which we can confirm the validity of an invoice by having digital connections with a lot of borrowers and we're able to get into their platforms or their, through APIs and be able to validate the invoices being sold to us. We're also doing outreach through calls and a variety of other means to debtors to confirm invoices. And all of that is done pre funding and some of it is done post funding. And then again, we built a technology through a variety of algorithms that is basically able to assess the risk associated to an invoice at the time it's being sold to us was an example. An invoice is classified as higher risk. It may be confirmed earlier in the process. Other invoices are classified as lower risk based on historical trends. So we're being very careful in terms of how we're funding, how we're confident confirming our invoices and then how we're collecting against our invoices. And again for the audience, we're funding Millions of individual invoices a year. And when you're thinking about it, we're funding millions of individual invoices. And what is our dilution rate, meaning of the $15 billion we have funded onto those millions of invoices, we collect on average 98 cents on every dollar. That's a very high level of collection. So therefore I have a 2% dilution that, that 2% dilution includes business disputes, includes fraud, includes marketing, discounts, everything. So when you're thinking about it, that we're holding a 10 to 15% reserve from client's account. We're well covered. We're well covered. From a reserve perspective, we're managing very tightly the asset we're collecting very, very close to full value on the receivables. We're confirming the validity of our assets. That's what's making this, this whole endeavor and our and us so success.

Right? Yeah. So just to be clear, so when you say the dilution is 2% or so, give or take, that's the amount of the invoice that you might not be collecting for a whole variety of reasons, but you've held back 10 to 15% just in case anyway. So you've got five to eight times coverage on that little amount that you may not collect.

That will be correct, yep.

Okay, good. Okay. So I, I think we hopefully listeners and us have got a good sense of the business and what factoring is and asset based lending, maybe give it just a little bit more. You talked a little bit about the loan volume, but can you give a little bit more metrics around the business, Number of different clients, number of industries, average. Just something to give a sense of, you know, what it's like day to day over at E Capital.

Sure. So we right now service around 6,000 clients. So the way to look at it is for those 6,000 SMBs, you know, we are their bank. We provide pretty much in most cases, if not in all cases, we're their largest lender. In a lot of cases where they're a single lender, we are the only secured lender. We're providing the financing to those businesses in Canada, in the United States, in the UK which are the three market where we're present. As I said, the counterparties to Those are around 20,000 account debtors that are the debtors behind the receivables we're being financing. We're in an environment in which it's a fast velocity environment. I mean borrowers borrow some of them daily, some of them weekly, depending on their Capital needs. We provide financing to clients in over 80 different industries. Now there is some industries we have a higher level of concentration to. As an example, transportation, healthcare here in the US Staffing, manufacturing, distribution are industries where we have a higher level of concentration. But we do provide financing to over 80 different industries and are continuously looking to increase the size of our book and include more SMBs and provide more financing.

You just mentioned healthcare is a very large sector. I guess that you provide your lending services to the obligor in that case, as far as I understand is really in some ways the US Government. Is that a fair statement?

Yeah, the healthcare book is primarily US based although we're looking at some opportunities in Canada as well. And the debtors are basically the insurance companies. And in the US Medicare and Medicaid are government owned and represent a large proportion of our debtors on the healthcare side. And then of course we have a variety of other private insurance providers. It's a big industry. Healthcare is a big industry in the US Healthcare providers that it's, you know, from smaller hospitals to clinics to assisted living facilities to nursing homes, there's a variety of healthcare providers. They need, they need the monies, they need the monies right away. They can't wait for their accounts receivables to get paid. They need to pay the nurses, they need to pay the doctors, they need to buy supplies and therefore for them to have access to financing in, in real time is, is, is a big plus.

Yeah. And I just raised, you know we talked about Walmart for a moment ago but slightly bigger than Walmart is maybe Medicare and Medicaid. The US Government, the nice effect, they pay their bill eventually.

Actually the US Government, you would be surprised. Medicare and Medicaid are our best payers. They pay in about 20 days. So they're very, very prompt payers. The healthcare book turns means repays less than 30 days. It's doing extremely well. Very good borrowers, very good debtors. So it's definitely an industry we're looking to increase our exposure to.

Nice. You've talked a lot about technology and you've talked a lot about, you know, you're sort of the bank for your borrowers. Can you give us a sense of what you're doing on the technology side and what are the full suite of services that you're offering to your borrowers? Because as you've alluded to it sounds like you're not really just a lender against their receivables. They may be looking to you for more and more because they may not be getting what they need from the regular banks.

Yeah. Again, a very, very important questions and fundamentally we asked ourselves what is important to SMBs? And what's important to SMBs is a, is speed at which they're getting their financing is very important. The amount of financing they're getting, they want to get the maximum out of financing is another key component. And how seamless it is to get that financing is another key component. So when we built the platform and we've invested in the technology, we invested with those elements in mind and what we've done is we've developed what I would refer to as a fully digital banking platform. So the way to look at it is, is when a client becomes a client, they can get funded 24 hours a day, seven days a week, 365 days a year. Now they, they submit a funding request. The system would process that funding request a lot of times in an automated fashion. They would schedule the funding schedules, they would fund the client. The client gets funded at 10 o' clock at night. The money is available in their E Capital Connect platform. Once that money is available, immediately they can disperse those funds. What do we mean by dispersing those funds? They want to make an ach, they want to make a wire transfer, they want to pay bills through bill pays, they want to issue digital checks. All of those functionalities are incorporated to our technology platform. So the way to look at us is not only where they're being, but we're maximizing the amount of financing. We've accelerated the speed of that financing and they don't even need to send the money to a third party bank to start spending it. They can spend it directly into our ecosystem. So we've now accelerated their ability to disperse these funds as soon as they receive them. Well, that's an absolute game changer in terms of how you're thinking that a non bank lender is really providing you really a fulsome solution. Now between the lending and the treasury side. And of course to enable all of that to happen, we needed to build back office systems to manage credit risk, mitigate credit risk and also allow us to gain scale. Because again SMBs means a lot of volume coming in from a lot of small clients. And in order to be able to deliver our solution at scale, we needed to build automation, machine learning and now utilizing AI to help us and assist us in being as efficient as possible in terms of providing our solution, but also providing our solution to the largest number of companies as possible. That's how we're Helping that space. That's how we're becoming a champion in the SMB lending space.

Yeah. My next question was going to be sort of what's the big opportunity for you and E Capital going forward? Maybe you've just alluded to it is becoming the full service, potentially banking and lending partner for them. But is that true or what are you seeing as the opportunity for continued growth? I mean in the grand scheme of things, you're a very large firm but also a very small firm in the, I think it was about eight, if I did the math right, maybe $800 billion in the US and trillions elsewhere. Is it continue to grow? Is it more full service? What's, what's the opportunity for you and your company now?

Well, now that we have, you know, we've really developed a very robust back office platform. We've developed a very nice, a customer focused technology platform on the front end. Customer experience has been great from the feedback we're getting from our clients for us is just continuing to grow. And what does that mean? Well, continuing to grow means we need to originate more deals, we need to start servicing more SMBs. And we're taking various steps in terms of doing so, including penetrating digital environment and third party platforms, including SaaS, platforms upon which we'll be able to connect and basically originate deals in a digital environment in order to be able to service the most amount of SMBs. And what does that really mean when I say what we're connecting with deals in a digital fashion? As the audience knows, there's a lot of third party platforms that have come up in the last several years that are connecting a seller of a goods and a product to a buyer. And no, I can use an example. I was introduced recently to a platform that connects very large property owners, Fortune 500 property owners, J.P. morgan and the likes. And those property owners need certain services being provided to their properties. They go to a platform and the platform issues a bid to a variety of jobbers and then a jobber eventually gets selected and fulfills that request. JP Morgan then confirms the request. Well, receivable has been created. There's been a service being provided to a J.P. morgan property as a result of it, there's $1,000 receivable that has been created and J.P. morgan agreed to pay that receivable in 60 days. What if at the time that receivable gets created, we provide the ability to the SMB to click a button and select to get paid early on that 60 day receivable from JP Morgan? So what have we done so now we've penetrated the digital environment in which financing is not offered. But that digital environment connects a seller and a buyer of a goods and service. And within that connection an account receivable is being generated as a result of a product or service being sold. Now we're penetrating that environment and we're offering the ability at that time, in real time for the SMB to get funded. Well, that's again a game changer. So as we start connecting into digital environments, we're able to really get even closer to where the action is, where the SMBs are generating their business and providing them at that time the ability to get funded early. Well, that's limitless in terms of, of the opportunity. And that's where we're going where we want to become the largest non bank lender in the markets where we're in and eventually expand from those markets. And in order to do so we need to increase the amount of origination, but we need to increase the amount of duration by doing it through a variety of digital means and providing digital solutions. That's the future of SMB Bank. That's where things are going in and that's where we want to go. And that's we want to be the first to get there. Now I'm going to conclude this by saying that as an example, on the consumer side, this concept of embedding finance is a concept that has been accepted. And what do I mean by that? As a consumer, if you go in and buy grainy goods, let's pick furniture as an example. You're buying furniture on an online website. Most websites provide you the ability to pay for your furniture now or get it financed through a number of six payments over six months at some financing cost. Well, it's not the retailer offering you the financing option. It's a lender that is connected to the digital platform of the retailer that is now offering you as a consumer the ability to finance. So it's already done from a consumer's perspective, but we're really just at the beginning of this embedded finance concept from a business perspective. We want to be the player that basically develops this concept from a business perspective because again, that opportunity is significant as we, as we penetrate that market.

Sounds like a good idea. Lots of positive things going on, lots of new initiatives as you just spent a little bit of time describing. Every business has challenges. Things that always go up and down here. What are the big challenges that your industry or your business specifically faces today? And then, and then I'd actually maybe add to it. I'd love your thoughts just on what's going on in the economy from your vantage point because you're touching thousands and thousands and thousands of small business, small and medium sized businesses and actually interacting with Fortune 500 companies who are paying the bill or the invoices that those small businesses issue. So what are the challenges you're seeing and then just in general, what are you feeling and seeing about the economy from your chair there?

Yeah, I mean, look, we've spent a lot of time and money developing the technology platform. We spent a lot of time and money making sure the technology platform is working well, delivers what we needed to deliver. You know, as a non bank lender, we still depend of outside lenders ourselves. No, as an example, the traditional banks will not lend to the SMBs that we lend to, but the traditional banks will lend to us. Private investors invest into us underneath the issuance of bonds and other instruments. So as a non bank lender, we are dependent of the investment communities and are dependent of the traditional banks for the financing that we need in order to provide the right solutions to the SMVs. We're dependent on the right technology and we're dependent on hiring and recruiting and training the right people. So ourselves not immune to a lot of the challenges that some of the SMBs are dealing with. We're just dealing with it in a different fashion at a different level. Now the good news is I would tell you that traditional banks and private investors have supported us and continue to support us in a big fashion, which indirectly is supporting the S and B market, which is great for the economy. Now what I would tell you is what I've seen, what I'm, what I'm seeing right now in the economy is, is look, SMBs are stretched. They're stretched. You know, inflation has been hard for a lot of SMBs. Inflation is sticked around for a number of, for over two years or around two years at this point. The labor market's been very tight. Therefore it's very hard to hire people. It's very hard to retain people. You got to pay them more, which drives inflation. You got to increase the pricing for your goods to be able to pay all of your costs. And guess what, the Fed increased overall rates. That's causing inflation. Also the reality is that borrowing costs are higher. So if borrowing costs are higher, therefore SMBs are supporting these higher borrowing costs and therefore they got to pass on to consumers these higher borrowing costs. I think what we're seeing is an environment in which SMBs are stretched. But the smart ones are getting through it. They're managing their costs, they're managing their inventories. They got to be smart about how they're going to market. I hope that decisions will be made, especially in the US by the Feds to start reducing the rates. I think a decision was made in Canada which was the first rate cut that was done in Canada recently because I think dropping the rates will be beneficial for the economy and will be beneficial for SMBs. It's going to be tough for the SMBs and for the economy in general to remain within this environment where interest rates are at 20 plus year high. And I don't think we've seen all of the effects of all of these higher rates trickle through the economy. You know, mortgages are coming up for renewal, particularly commercial mortgages, which is problematic. Home sales have dropped significantly, which is problematic for builders. So I, I, you know, I would say our, our SMBs are in the economy is still doing fine, but is something that we're, we're watching very carefully. We're watching the industries very carefully. Some are doing better than, than others in, in this environment, but obviously that's, that's us being a, a prudent lender in, in this environment.

Good. Appreciate that you just mentioned that you receive support from, we have banking partners obviously that lend you a very large amount of money. Actually those would be your senior, your senior lenders, I guess, and then private investors. That's where we would come in amongst many others. I'm sure. As I said right at the beginning, there's been some issues in this, let's call it the private debt space in Canada, probably around the world too, but were in Canada here. And I said right at the beginning, I, I view E Capital and what you're doing may be slightly different, maybe more than slightly different than some of these other lenders that have had some challenges. What's the difference between ECAPL and maybe some of these other private debt strategies or funds that are out there? First of all, then I'll ask you.

A few more questions. Maybe it's a good question and there's a couple of differences. One is, I think the instances in which some of these lenders got into trouble is they, they, they were not secured lenders. Second, most of these were term loans that were being provided. And third, most of these term loans had pick interest. So what this means, pick interest is I give you a loan and I just accrue the interest. So you're not really paying anything in cash. Well, that is very different. Than us? No, we're a secured lender. We lend against real assets. The form of that lending is a revolver. As the asset pays down, I get paid down. You can reborrow as you create new assets. I get paid down monthly, I take down my interest monthly, I don't accrue it. So those are very significant differences. The other difference is the oversight is as you mentioned, we have relationships with banks. In fact we have three syndicates in which over 17 banks are participants into those syndicates. Those are the largest banks in this country that are participating. Well obviously with bank participation comes oversight, which actually should be comfortable for the investors because you got the 17 largest bank in this country are continuously looking at E Capital, having oversight of E Capital, having oversight of the assets that a capital lends against, which in itself is a nice layer of protection comfort from a private investors. A lot of these other situations, there was no banks involved, they were term loans, they were unsecured loans. Very, very different situation than, than, than, than the ecosystem where we, we are in.

Okay, and that's a great explanation. And then the, I think a common thread of maybe some of the areas where some of these other lenders have got into a little bit of trouble with investors is investors say well, I'd like to get my money back please. And they say sorry, we can't give you your money back for a whole variety of reasons. How does, how does it work with E Capital? How do you know? How do you make sure you've got liquidity to repay investors when it's time for their. I get loans essentially to you to get repaid.

Well, again, going back to the nature of our assets, our assets are short term, no. So the entire book turns to cash in 30 to 35 days. So we have very high levels of liquidity. No. So that liquidity allows us to in an ongoing fashion manage our, our, our levels, our inflows and our outflows. If something happens and we need to put liquidity out, we just reduce our lending. And it's something that we do instantaneously. If an event happens in the world that makes us uncomfortable, we reduce our lending. Again going back to what happened during COVID which is a good example of proving the thesis we didn't lose any money, we didn't have to require any forbearance from any of our investors not to pay our interest or our redemptions. We paid our redemptions, we pay our, paid our interest in the normal course business because what happened in that event borrowing slowed. So therefore our portfolio from Assets converted into cash, payments came in and no money went out. So as as payments came in, the amount of liquidity went up temporarily until borrowing started again. But we didn't get hurt. We're not stuck in a situation in which we're lending against fixed assets, which has also been the problem of some of these lenders that have got into issues is they've gotten into loans that are just not liquid. They can't liquidate those loans. I'm not getting any cash from, from the loan. It's a term loan and I'm not, not even getting interest. It's a pick. I'm accruing the interest. So what's my cash flow? I have no cash flow. Our situation is we have ongoing cash flow and ongoing liquidity as a result of the short term nature of our assets. So again, that's again another big difference into our business in our ecosystem versus some of the situations you've mentioned.

Okay, and then last question on this investor side maybe is, you know, aside from hiring a firm like Inserwealth, which we'd be happy to work with folks out there, of course, how do investors evaluate a private lending firm, a active base lender like yourself? How would you advise investors to evaluate the firms that they might want to invest in or lend to depending on the situation? I think it's very difficult personally unless you have a certain level of expertise, which I think we do. Any advice to folks that are looking at this and what they should do to get, you know, knowledgeable and make sure what they're investing in is, is appropriate for them?

I mean look as an investor, first of all, look at the history. How long has the company been around? You know, what, what are the portfolio losses, you know, what's the dilution in, in the portfolio, you know, who, who's, who's management, who's behind the business, who else is involved with the business? Are there banks involved with the business or is it just supported by private monies? You know having banks and institution involved into a business is, is always a good thing because that means there's oversight over, over that business. And then I would tell you is how, how large is the business probably want to invest into a business that has become a plan. You know, factoring in asset based lending, even from a non banking perspective is starting to be driven by much larger players. What I believe is going to happen the next three to five years is you'll have a handful of, of multibillion dollar non bank lenders and everybody else will be small and these multibillion dollar non bank lenders, these, this handful of lenders are going to control the majority of the market, are going to be sophisticated, will have the right tools, will have the right systems. And as an investor you want to have exposure to this very liquid asset class, invest into those players. Now of course if you want to invest into a small player, then your level of diligence has got to be substantially different because that's a different situation with a different risk parameter around it. But I think there is opportunities obviously within your capital and hopefully within others as the market evolves to invest into private credits. And I would tell you, even a lot of the hedge funds all want to have exposure to short term assets such as accounts receiver. Even the securitization market which is driven by insurance providers and other very large investors are chopping at the appetite to provide ABS facilities which are securitized facilities backed by short term receivables. So it is an asset class that is here to stay. SMBs will continue to have needs for financing on an ongoing basis. And I think as an investor look for the larger, more sophisticated, more reliable platform for you to invest into.

Amazing. Okay, well great look. Thanks for all that. That would be a wrap on the core of the podcast here, one thing just before we let you go, I think we've got literally a minute and a half left of your time, which we very much appreciate. One thing we always ask as our final question, our theme here is unlimited. That's our, that's the name of the podcast, that's our key word. Our sort of tagline is your wealth unlimited. Because we're invested with, with you as an example, a lot of other firms don't have access or don't do the sorts of things we do. So I like to ask our guests if you weren't the CEO of E. Capital and doing what you're doing, the world is unlimited to you. You can do anything in the world. What might else you'd be doing in life, not, not what you're doing right now?

Well, you know, it's kind of a difficult question because I've been an entrepreneur all of my life so I think, you know, be hard for me to do something. I may be investing into some other business than specialty finance, but I think my nature is I'm well be an entrepreneur for the rest of my life. That's been my career.

Right. Okay, good, good answer. A lot of people say they'd be doing what they're doing and that means they love it and that's probably the most important thing. So look, Marius, thank you so much. Really appreciate your time. Good discussion on private debt factoring, asset based lending, a type of private debt that probably many people don't know or might not have understood. So thank you for your time and wish you continued success.

Thank you Brian.

Thanks for having me. Okay.

The unlimited podcast is hosted and produced by Brian Ginsler and is edited and mixed by myself, David McMillan. This podcast is not to be taken as investment advice. If you like what you heard, don't forget to rate the podcast and follow us on social media. Inslerwealth thanks for listening and see you next time.

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