Mid-Market Lending Options

The Explosion in Lending Options for Mid-market Companies.

Hi everybody i’m janine i’m here with dave from attract capital and today we’re going to be talking about the explosion in lending options for mid-market companies so dave and they’re gonna dive into this can you tell us a little bit more about what this looks like and if it’s a good time for mid-market companies to be borrowing loans charging it’s great to be here

And it is a terrific time in the market for if you’re looking to borrow a loan there’s there is a veritable explosion in options and we’re gonna talk about the major reason for that which happens to be the the growth in these direct lenders and these direct lenders have just become this mammoth force in the market over the past five years but it’s a great time

And there’s a lot of new capital that’s come online which means that all the other lenders are having to compete even harder to put money out and we’ve got a really strong economy so there’s probably no better time i’d say we’re in like the golden age mid-market companies and if you’re looking for a loan there’s probably no better time to go out and find it right

Now that’s great to hear so what’s going on right now in the lending market for a mid-market company well i think the key theme that i see is the rise of the non banks so traditionally you’ve had banks and they’ve been dominant but over the last nine years you’ve had the growth in this sector called non banks and there are other also known as direct lenders and

Over the last five years this group of lenders and there tend to be either private equity firms or credit funds or independent funds they’ve gone from about 63 billion of assets under management to 181 billion under management so they’d like tripled in the last five years and they’ve become a real force and what they’ve done is they’ve forced the banks to become

Stronger and more competitive for the lending business of mid-market companies and they’re really pushing into the mid market and they’re doing smaller and smaller deals so we’ve seen some of these direct lenders these non-bank direct lenders look at deals as small as 6 million 7 million so they were force to reckon with they brought a lot of additional capital

Into the market and they’re raising a lot of money later in 2017 they raised thirty five billion dollars in 2018 it looks like they’re gonna raise even more than that so it’s just a tremendous force and its really changing the structural landscape of mid-market lending so there’s a lot of growth happening right tremendous amount of growth and what do you think’s

Causing them to raise that much money where’s this coming from that’s a great question janine where is all the money coming from it’s coming from the fact that a lot of institutional investors a lot of pensions a lot of asset management firms endowments they like the returns that you can get from making most of the market and because if you look historically at the

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Returns that these loans have paid it’s been very stable and it’s been high it’s on average about 9% so they tend to like the return profile and in a world where you have a lot of fixed income debt securities these are floating rate securities which is a very positive so there’s a big push in the market with a lot of the money in the market that’s going to these

Funds so that’s why they’re raising money hand-over-fist so if i were the market company why would i want a loan so the direct lenders they make loans like everybody else but one of the things one of their hallmarks is that they can do a tougher deal so if you don’t have as much collateral or if you have some if you have a bit of a story to your company as to

Maybe you had a bad year but you’re still a great company it’s easier to convey to a direct lender a non-bank direct lender than it is to convey that to a bank so be more flexible and if you get into the middle of the loan let’s say you’re two years in let’s say you have a tough year you’re not making much money you’re not doing the numbers that you thought you

Were going to do usually the knob bag direct lender is more understanding and more flexible world so you can do a tougher deal with them you can get money from them that you can’t get from a bank and they’re more flexible so those things are very important to the mid-market companies they want to know that the person they’re working with is flexible and will be

A good partner over the long term that makes sense so what are the different types of lenders available to the mid-market convenience so i’d say if we look at probably the biggest form of lenders to the mid-market companies or banks okay and we’re gonna into it just to touch on banks for a second banks are growing their loan portfolios they’re not growing as fast

As the direct lenders but they’re growing and banks are still good to go and try to get a loan from but they’ve become restrictive and so they don’t accept as many loans they don’t accept as many borrowers as they want used to but with banks banks are having to work harder now because of the competition of the direct lenders so they will give you more availability

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They will give you less onerous covenants and what we find from the recent deals that we’ve closed the smaller regional community banks are better to deal with for the simple reason that they’re more lately regulated so the big banks are very heavily regulated and the small community banks are less regulated that’s good sign you still go to banks that they’re still

Available there for the companies to go and get money they are but the big banks are very difficult to deal with because you can go to up somebody in one region who’s gonna take you to somebody in another region who’s gonna take you to a decision maker in a third region and they’re very disciplined and ask i think exactly it’s hard to know who the person behind the

Curtain is a and had a smaller bank you can meet the decision maker in the first meeting so it’s a very it’s more of a person-to-person connection and it’s more personal and people like that absolutely and how about mezzanine funds mezzanine funds it sounds just the word mezzanine it sounds more exciting and interesting than it really is mezzanine funds have been

Around for a really long time they’ve been around for 25 30 years they’re still out there they’re still doing loans they are having to compete more because of the bank’s being more aggressive and because of the direct lenders being more aggressive they are still very they can be very flexible they can give you a very bespoke structure and they are still probably

The best game in town when it comes to roll up situations so if you’re a mid-market company and you need money for multiple acquisitions over like a two or three year period a mezzanine lender is a great bet they can supplement a bank they can give you more money than a bank but they’re they’re good there is good strong option and their pricing has even come down a

Little bit because with all this new money that’s in the market everybody’s had to shop in their pencil in order to remain competitive so that’s it the the direct lenders really by themselves have made the entire market more borrower friendly and made it more of a buyers market for it for those and then so what is the future to you i think they’re gonna continue to

Gain i’m gonna look into the crystal ball here jemaine i think the direct lenders are gonna continue to do really well i think they may not raise as much money over the next couple of years as they have over the pad two years but they’re gonna continue to take market share from the banks okay and i think their pricing is going to give more competitive i think the

Banks are gonna have to get more like the direct lenders and the direct lenders are probably to become more like banks there’ll be some other convergence there okay so for me what would be the best lender for me would you go with a bank direct lender mezzanine funds help me out here okay well your name your name rhymes with mezzanine so okay almost but it really

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Depends sinead on what you want to do okay it really depends on how much money you need and the simple answer is mid-market companies could go to all three of those types of lenders we call them channels so you have a bank travel you have a mezzanine channel and you have a direct lender channel and you can get different things from each of those forms of lender

And you kind of have to look for the best combination of those different things and so you really can’t afford not to go to all three of them so you have to go across all three channels you have to go across and then source through all of them you have to go across then you have to source like exactly so i feel like maybe attract capital maybe does something like

This how did you know that you mean it’s just so we whenever we get a client what we always do before we even onboard them is we talk to people in each of those three different channels we’ll talk to people at a bank talk to people at the mezzanine talk to people directly endures to see how they view the lending opportunity that we’re bringing to them we call it

We have a special report we call it cross channel source set cross channel sourcing okay again it sounds a lot more exciting than it really is but what we do is we try to reach into all three of those channels because sometimes a bank will really like a company that you don’t think they’ll like because they’ve had a positive experience with it and they’ll give you

A really good deal sometimes the mezzanine lender same thing sometimes the mezzanine lender won’t like it for a very strange reason and so on and so forth so you really it’s hard to know the specific reasons why each of these channels will like or won’t like a deal so you kind of have to go to all three of them to make sure that you get enough trophies so you get

A good result who can help you through track capital i think we’ve covered everything so there is an explosion going on you can participate in it give us a call and we’re happy to take you through more information on the subject take care everybody

Transcribed from video
Mid-Market Lending Options By Attract Capital