CAN Capital is initiating mass layoffs just weeks after the embattled small-business lender replaced its CEO and suspended its efforts to find new customers.
The New York-based firm, which has long been a leader in the merchant cash advance business, confirmed the staff reductions on Friday. The company attributed the layoffs to what it described as its current and projected business needs.
“While this is a difficult decision, we believe it is necessary to position ourselves for long-term success,” CAN Capital said in an emailed statement.
The company declined to answer questions about the number of layoffs, or where the jobs were based. But data provided by CAN Capital to state officials in Georgia listed 136 layoffs in Kennesaw, Ga.
A source familiar with the situation said that the company laid off a total of around 250 people on Thursday, including the firm’s entire staff in Costa Rica. The source estimated that the people who were laid off accounted for at least half of the company’s total workforce.
On Nov. 29, CAN Capital said that CEO Daniel DeMeo had been placed on a leave of absence, along with two other top executives. Parris Sanz, the firm’s chief legal officer, took over as acting CEO.
The executive shakeup came in the wake of higher than expected losses on the firm’s small-business finance products. On Nov. 30, the company said that it was suspending its efforts to sign up new customers.
“At the present time, we are focused on providing access to capital for our current customers and our renewal business,” the firm said in a written statement at the time. “We are not actively seeking new customers at this time, but will evaluate them as they come in.”
CAN Capital was founded in 1998 and has provided more than $6 billion in small-business financing, according to its website.
The company was a pioneer of the merchant cash advance, an expensive form of financing that some critics liken to a payday loan for a small business. Businesses that use the product get an upfront sum of cash, and then make a daily payment based on a percentage of their daily revenue.
CAN Capital says that it offers an option for small business – including restaurants, medical offices and nail salons – that might be unable to qualify for mainstream credit.
Companies in the merchant cash advance industry frequently rely on brokers who have an incentive to sell products that will pay them the biggest commission, rather than promoting the best option for the borrower.
The providers of financing often get exposed to losses when brokers, in a practice known as loan stacking, return to existing borrowers and offer them new loans from different creditors that are secured by the same assets.
Last year, CAN Capital launched two new loan products, including a monthly installment loan that offered longer terms and larger transaction sizes.
In April 2016, the privately held company said that its revenue had experienced a compound annual growth rate of 24% over the previous five years.
In a June interview, DeMeo said that CAN Capital’s profitability set it apart from online lenders that were struggling. “The business is profitable, and that allows us to drive self-sustained growth,” he said at the time.