Bay Area finance veteran takes aim at Square, PayPal with new lending service
Barbara Morrison, president of Oakland-based TMC Financing, has worked with thousands of small business owners over the years to help them secure commercial real estate financing backed by the Small Business Administration. Increasingly, she doesn’t like what she sees: More small businesses becoming dependent on convenient but costly merchant cash advances.
So Morrison created TMC Community Capital, an online microlender for medium- and higher-risk businesses that provides an alternative to cash advances from Square (NYSE: SQ), PayPal (NASDAQ: PYPL) and others.
“Small businesses get trapped in high-cost merchant cash advances. That’s the reason I started this company,” Morrison said.
Representatives of Square and PayPal did not immediately respond to requests for comment from the San Francisco Business Times Wednesday. But merchant cash advance services have their fans, given that it’s another source of capital for small businesses.
“Access to capital can be the largest obstacle standing in the way of growth for many small businesses. In fact, according to a Federal Reserve survey, a staggering 70 percent of small businesses that apply for traditional loans do not receive the funding they want,” Greg Waldorf, CEO of Redwood City-based Invoice2go, said earlier this year in unveiling a partnership with Square Capital.
Morrison, however, believes many small businesses will be interested in a more cost-effective financing alternative.
“We’re still in our early days,” said Morrison, who also established microlender Working Solutions, which makes small loans to businesses in traditionally underserved communities. As an affiliate of TMC Financing, TMC Community Capital can make loans from $5,000 to $50,000 for terms of two to five years, sharing TMC Financing’s administrative, underwriting and servicing staff.
TMC Community Capital has received a $5,000 grant from Wells Fargo (NYSE: WFC) to help build the new nonprofit lender, which will combine an online platform with staff to help borrowers get financing. Signature Bank, which entered the San Francisco market last year, provided $100,000 in lending capital. The trade group California Association for Micro Enterprise Opportunity, or Cameo, provided $200,000 in lending capital. Such donations and investments can help banks meet regulatory requirements under the federal Community Reinvestment Act.
Morrison taking aim at the cost of merchant cash advances will likely get noticed, given her success in small business financing and microlending.
She founded TMC Financing in 1981 to serve as a so-called certified development company that has become the nation’s largest SBA 504 lender. TMC Financing focuses on small business owners using the Small Business Administration’s 504 loan program to purchase the real estate in which their businesses operate.
In fiscal year 2018, TMC provided $267 million in SBA 504 financing for projects worth more than $743 million. TMC partners with banks and other lenders in providing the SBA financing.
TMC is also a “Community Advantage” lender, which provides general purpose SBA-guaranteed loans from $50,000 to $250,000.
Morrison said she envisions TMC Community Capital borrowers eventually graduating to larger loans under the Community Advantage program as well as qualifying for conventional financing.
TMC Community Capital plans to market its services to women-owned businesses, but the new lender made its first loan to Holy Barbarians, a Los Angeles-based business owned by five men. The company in the entertainment industry borrowed $50,000 at 6% for five years to pay off a merchant cash advance and provide working capital.
TMC Community Capital is working with a woman-owned company in the Bay Area for its second loan.
“Less than 5% of small business lending — only about $1 in $23 — goes to women,” Morrison said.