DEL MAR – Too many commercial lending companies fail to properly balance their algorithmic decision-making with the human element, according to William Stern.
“I wanted to find this unique blend of technology and labor, where you don’t have technology outpacing what humans can do, but sort of augmenting what they can do, almost like an Iron Man suit,” said Stern, the founder and CEO of alternative small business lending outfit Cardiff.
Cardiff has grown to be a marvel in the alternative lending industry over the last two decades, dispersing roughly $10 billion to growing small businesses, expanding into Mexico and becoming competitive with small business financiers like Stripe Capital, Square and OnDeck Capital.
After Stern founded the company in Santa Ana in 2004, he and co-CEO Dean Lyulkin opted to move Cardiff back down to San Diego County in 2010. The pair grew up in San Carlos and became lifelong friends when they attended Hebrew school together following Lyulkin’s immigration from the deteriorating Soviet Union in the late 1980s.
Great Recession Lifts Revenue-Based Financing
One of Cardiff’s primary goals is to modernize the concept of merchant cash advances, helping small businesses that may not qualify for traditional bank capital to access commercial lending products.
Merchant cash advances, or revenue-based financing, first gained popularity in the wake of the 2008 financial crisis, when banks were more reticent to lend to small businesses than propositions like real estate and auto loans that carried far less risk.
As a result of that capital source freezing for a large portion of small businesses, alternative lenders began to offer what were essentially advance payments to businesses based on their gross credit card receipts.
At that time, Cardiff primarily helped finance franchised hotels as well as businesses in the automotive and food service industries. According to Stern, the company was also hesitant to begin offering merchant cash advances, seeing them as a potentially unfavorable financial product.
“We stood on the sidelines and waited, wanting to see how this would play out,” he said. “Essentially more and more companies started to (offer) this product, and we waited for larger companies to do it.”
Whereas merchant cash advance lenders initially only dispersed funds based on gross credit card receivables, Cardiff aims to build a more holistic profile of a potential customer business by reviewing all of the ways in which they receive payment from customers.
According to Stern, more than 90% of businesses across the country have received a revenue-based cash advance.
Social Media Marketing Merchant Cash Advances
Cardiff customers are typically lent money at a monthly interest rate of 1% or 2% and the company can process and disperse funding in as little as 48 hours.
“I understand money is difficult to acquire; it’s also expensive right now,” he said. “So we try to delicately walk this tightrope between our own cost of funds and what we put out in the market to make sure that it’s competitive with our peers, but more than that, to make sure that these merchants can pay it back with relative ease.”
Stern argued that Cardiff’s main advantage over other small business lenders is its advertising apparatus on social media. The company is the largest advertiser of commercial loan products on Meta platforms, Google platforms and TikTok, he added.
But that advertising spending has consistently paid off in customer loyalty.
“It may cost us a lot on the front end to acquire a merchant – it costs us right around $5,000 to acquire a merchant through our advertising – but then they just stay for life,” Stern said.
Cardiff
FOUNDED: 2004
CEO: William Stern
HEADQUARTERS: Del Mar
BUSINESS: Alternative small business lending
EMPLOYEES: About 110
WEBSITE: cardiff.co
CONTACT: [email protected]
NOTABLE: Most of the company’s staff is split between its two offices in Del Mar and Tijuana.
Eli is an award-winning reporter primarily covering the tech and life sciences industries. He previously worked as the San Diego City Hall reporter for the regional wire City News Service. He has also covered public health, transportation and state and local politics in the San Francisco Bay Area for Local News Matters, the nonprofit arm of the regional wire Bay City News Service, where he also oversaw the development and daily content management of the outlet’s public health and COVID-19 news and resource webpage. He is also a contributing writer covering Minor League Baseball for the analysis and commentary website Baseball Prospectus. Eli is a graduate of San Francisco State University and a native of Northern California.
