Catering to the Customer…Marlin Provides Working Capital for Small Businesses

by Rita E. Garwood May/June 2015

Marlin Business Services Co-Founder Daniel P. Dyer discusses the company’s evolution, from the early startup days to the decisions to go public and launch a bank. With the recent launch of a loan product, Marlin is not only continuing to grow its core vendor finance business but also seeking to reposition itself as a more diversified lender to small businesses.

When Daniel Dyer, co-founder, CEO and president of Marlin Business Services entered the financial industry in the mid-1980s, his desire and aptitude to learn everything he could about the industry was clear. Today—with almost a quarter century of experience under his belt—he continues to set the bar higher, aiming to be profitable and successful not only in Marlin’s core small-ticket vendor business but in new ventures as well.

Laying a Solid Foundation

Dyer says his Dad, a second generation immigrant, taught him the value of hard work, discipline, focus and commitment. “If you’re going to be an entrepreneur and build a company you better have some degree of resolve,” he explains. “You’ve got to learn that from somewhere and I got it from him.”

During the first ten years of his career, Dyer learned the ropes of the industry at Advanta Corp, a diversified financial services company involved in both consumer and commercial lending. “I had the opportunity to be exposed to several people in the organization that were very experienced and very knowledgeable in the world of consumer and commercial finance,” he says. “So it was like an MBA and doctorate all rolled into one.”

When Dyer was in his mid-30s, he was ready for a change and decided to form a company with several Advanta colleagues. “We were fortunate to have gained a lot of experience there,” he recalls. “We didn’t have any non-competes or anything that would hold us back from starting out on our own, and so we launched what is today Marlin.”

Doing Business in the Public Spotlight

When Marlin was born in 1997 it was a true start up. For the first six or seven years, the company raised capital in the private markets. However, the company reached a crossroads in 2003 and had to make a choice. Would Marlin continue to raise equity in the private market, sell the company, or go public?

“The dotcom bubble had run its course and markets had an appetite for new issuance, so it was a very opportune time to tap the capital of the public markets,” said Dyer, recollecting that investors were looking for companies that were real and profitable versus figments of someone’s imagination, which made the exercise more akin to gambling versus investing. According to Dyer, Marlin’s decision to go public was tied to gaining access to a lower cost of capital at a time when the markets were receptive to new investments.

While being a public company comes with benefits—Dyer lists more market visibility, better access to capital and help with recruiting as the major upsides—the list of cons is just as long. “When you’re public, especially in the post Dodd Frank era, it requires a high degree of transparency and disclosure,” he explains. “With that comes the fact that you’ve got to oftentimes disclose more information to the market that you would otherwise have to do if you were private.”

Dyer says that additional disclosure comes with two major downsides: competitors have greater access to company data and market intelligence, plus the added cost of compliance. He says another drawback of public funding is feeling the need to “beat to the drum” of the public market. “You’re always torn between addressing shareholder views and trying to invest and plan for the future,” he explains.

Unearthing Hidden Value in the Great Recession

Shortly after launching Marlin, Dyer set the wheels in motion to obtain a specialty bank charter for the company. “I understood what it would take to start a bank and I saw the benefits of diversified funding and not relying solely on the capital markets,” he explains. “That would lay the foundation for us to be more of a full service commercial lender beyond equipment leasing.”

Dyer had a strategy in mind when he decided to take Marlin into the banking space, but when it came time to launch the bank in 2008, he discovered that there was even greater value to having the bank charter than Marlin initially recognized—they didn’t anticipate that a whole shift in investor sentiments was going to occur in 2008 and 2009 when the capital markets shut down. “It was only then we realized the full benefits of having that bank,” he says.

“I think pre downturn people thought, ‘Funding? That’s easy to come by. There are plenty of banks out there that will lend to you. The ABS market? That will always be there.’” Dyer recalls. “Well, all of a sudden, it wasn’t. That’s probably the first time in my memory that the markets were just completely shut down. No one was saying yes. Everybody was saying no. So it reminded us that funding diversification was more critical.

In addition to being mindful of the importance of funding diversity, Dyer says another big lesson he learned from the Great Recession was the art of forward thinking. “The Great Recession taught us to always be looking around the bend,” he explains. “Don’t rest on what exists today or the environment that you’re operating in today. The economy, the competition in the environment and technology always changes.”

Working Capital for Customers

Dyer says Marlin’s go-to market strategy for its vendor business is to provide a value and a service solution. “It’s really about value and consistency—that’s what we strive to do year in and year out—we want to get better at what we do and strive for excellence,” he says. “For us it’s about training people, how we treat the customer and trying to be solutions oriented. We have a positive reputation out there and it’s something that we have to earn day in and day out.”

Marlin has been a leader in the small ticket vendor space, and Dyer says they’ve done business with over a quarter million businesses. “We touch 25,000 to 30,000 businesses each year who apply for credit,” he says. “Many of our customers have asked us over time, ‘In addition to leasing can you provide a loan product for us?’ So over the course of time we developed a working capital loan product to meet the needs of our customer and the market at large.”

Dyer says the new Funding Stream loan program for small business, which Marlin plans to roll out nationally, is orientated towards Marlin’s online decision making capability which will facilitate access to working capital. “For many of our customers this product isn’t offered by their local bank,” Dyer explains. “So there’s a real gap in the market for this type of loan offering.”

Looking into the Future

The recent flood of equity into the market is a trend that Dyer is watching closely. He believes that a state of excess will be created from the emergence of new companies, which may lead to a level of irrationality when it comes to price competition. “Something will have to change whether it be a tightening of credit or an economic downturn where some of that gets weeded out,” he explains. “I think the influx of equity into the lending market may have some consequences with respect to who does well and who survives and who doesn’t over the next three to five years.”

Dyer sees a few potential paths that the industry might take within the next five years. “On one hand, I’m thinking through technology a whole new line of competitors may emerge,” he says “On the other hand, I’m thinking consolidation may occur because size matters.” He says it will be interesting to see what will happen with the new indirect competitors and alternative lenders entering the space. He also cites the recent trend of bank lenders garnering more market share as noteworthy.

Profitability clearly matters to Dyer. In fact, he claims that the industry tendency to focus on assets and origination volume is his pet peeve. “I think at times that the singular focus on volume does detract from other components of profitability which is managing risk and overall performance,” he explains. “Because last time I checked, everybody’s in a for-profit business. So at the end of the day, we’re in business to make money.

“I go to these industry events and everyone complains about pricing pressure,” he continues. “I look around and everyone is contributing to that.” Dyer wonders if the primary focus shifted to something different, it might create an atmosphere in the industry that’s more conducive to rational decision making.

Dyer sees another irrational trend emerging today: many young people coming out of college are less career-minded. He says the greatest challenge that Marlin—and many of its peers—face today is finding, attracting and training the new generation of leaders in the organization. “I’m from a different generation where you would get into an industry and work your way up and learn everything about it,” he recalls as he thinks back to his first boss. “He took me under his wing and took the time to go out of his way to get me exposed to things that the position didn’t call for.”

Marlin takes a similar growth-oriented approach with their employees. “What we try to do is create a career ladder in training and development and really invest in people that we want to hold on to,” he explains. “You want continuity in your workforce. It helps promote the culture and what your mission’s all about and it hopefully starts with being selective in who you hire and then nurturing them along the way.”

Rita E. Garwood is editor of Monitor.

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