Let’s say you’re a small business owner looking for financing. You could be looking to repair a pizza oven that just broke a few hours ago, or you could be an auto mechanic who is looking to expand your business. Unfortunately, if you try to get a traditional small business loan from a bank, odds are that it’s going to be very difficult and time-consuming, especially if you are running a business that might be viewed as high-risk, like a restaurant or other services-based business.
Boston-based Forward Financing is providing a financial solution for this underserved market. Founded by Justin Bakes and John Cain in 2012, the duo both had longtime careers spent in investment banking. Bakes spent his earlier career with Citigroup, UBS Investment Bank, Watsco, and 1st Merchant Funding, while Cain spent years with companies like Burger King, XRoads, and Rothschild.
In the early 2010s, the original idea for the company came when Bakes noticed that banks were “retreating in terms of what they were offering businesses.”
“So to businesses, they were increasing their minimums and their underwriting time took weeks—not days or hours, and their collateral requirements were difficult to meet. I started learning about this issue through an advisory assignment and with my co-founder John Cain, we decided to start Forward Financing,” Bakes said.
The underserved market that Forward Financing supports are businesses that tend to have credit and cash flow challenges. For example, a seasonal restaurant at a beach community is going to maximize their revenue over the summer months, but the winter is going to be pretty lean.
Bootstrapped from the beginning, the company was started with “a lot of sweat and hard work,” Bakes explained.
“John and I started by data-mining Excel spreadsheets and sending out direct mail to businesses like beauty salons and auto mechanics. The phone would ring, and we would offer them capital. At first, we were offering on behalf of other funders—so we were brokering, but we had that background and knew how to price a deal. Every dollar we earned, we put it towards our own capital, so we now underwrite our own financing for customers.”
Speed is one of the key benefits of Forward Financing’s platform. After a business applies on the company’s website, 95% of applications are approved within 3 hours, which gives the small business owner access to capital fast. Another key benefit is the underwriting process. The majority of the cash advances that are distributed (between $5,000 and $300,000 at a factor rate of 1.15 to 1.5, payable over a 4-12 month period), have the same initially-agreed upon financing amounts and terms. No changing terms at the last minute like traditional banks might do.
The reason they’re able to process financing so quickly comes down to the technology platform they have built, which includes a heavy data analytics component that gives the company access to predict the future performance of the portfolio. The web platform also includes originated and underwriting technology, a partner portal, and a merchant portal. This part of the company is supported by about 20 engineers, while Forward Financing has a total of 120 employees between Boston and an office in the Dominican Republic.
“We deliberately decided to start our company in Boston because of the great access to talent and the focus on the tech industry here.”
Forward Financing is making fast progress. They have $200M in financing this year on their balance sheet, and according to Bakes, the company will have serviced over 10,000 businesses by the end of this year. As for future outlook, they plan to grow and scale even further.
“Going forward, we plan to leverage our tech platform and our people. We’ve started growing headcount at the rate we want to, and we expect to grow about 50% year over year for the next couple years. Right now, we’re focused on putting the right people in place to continue to scale.”