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New Trends Emerge Across the Entire Asset-Based Lending Spectrum

November 2014 - As published in the ABL Advisor

As ABL Advisor enters its third year of publication, we are pleased to present our annual industry leaders market segment overview. In the following four-part article, we catch up with five industry professionals from four leading asset-based lending and factoring institutions. As has been our custom, we approach the industry from varying market perspectives ranging from the large corporate marketplace to small business lending. This year we hear that there are detectable trends evolving across the entire spectrum of commercial finance. We invite you to explore the perspectives offered in the interviews that follow.

Speaking of this year’s participants, we extend a hearty thanks to Michael Murphy of Union Bank’s Asset Based Lending Group, Michael Scolaro and Jay Schweiger at BMO Harris Bank’s Asset Based Lending Group, Darren Latimer at Gibraltar Business Capital and Jeffrey Goldrich at North Mill Capital for their valuable time and invaluable contribution to this overview.

As always, the questions are tuned to best fit the different market sectors, yet our five executives agree that both ABL and factoring continue to play a prominent role in financing today’s economy.

North Mill Capital: Taking the Time to Listen
Jeffrey K. Goldrich

Jeff Goldrich and his staff at North Mill Capital work hard at fully understanding their borrowers’ needs … and that makes all the difference in his firm’s ability to think “outside the box.”

North Mill Capital is both an asset-based lender and factor with two full-service offices in Princeton, NJ and Minneapolis, MN. The company has business development officers in various parts of the country and offers its products on a nationwide basis. Asset-based loans range from $400,000 to $15 million in three primary sectors: manufacturing, wholesale distribution and service companies. In its factoring business, transactions range from financing startups at near zero dollar levels to $15 million.

ABL Advisor:  From your perspective, what would you say are the chief concerns small business owners face when it comes to meeting their financing needs? Other than capital, what are these entrepreneurs seeking from their finance company?

Jeff Goldrich:  Our borrowers are most concerned with the cost of money and beyond that, having a lender that is flexible in terms of structure. They want a lender who is willing to provide financing that is “out of the box,” so to speak. For lenders, it’s easy to fit things into conventional advance rates on receivables, inventory, and machinery and equipment. Trying to force a borrower's financing into a cookie-cutter model rarely meets their needs. They are looking for a lender who tries to find a way to go over and above that. We find our borrowers are looking for a lender that is willing to spend the requisite amount of time required to listen to them and really get to know their business. Because we do that, we can generally find a way to be more flexible and in turn, meet their needs.

ABL Advisor:  In what other ways do a small business owner’s needs differ a middle-market borrower’s needs?

Goldrich:  Small business owners’ needs are very different from those of a middle-market borrower in a number of ways. For one thing, there is really no difference between the person who owns a small business and the business itself. Middle-market borrowers have more influence over their lender. They get more competitive financing, and the world – perhaps unfairly – takes middle-market companies more seriously. Small business owners have to work harder to get more attention and flexibility from their lenders. And for the most part, forman projections and business plans can sometimes be lacking on the part of small business owners. As a lender in this end of the market, you need to spend the time listening to small business owner articulate their needs.

ABL Advisor:  In considering today’s economic environment, what are the realities finance companies face when it comes to securing their own financing?

Goldrich:  I think the environment is very good for finance companies in this regard. Lending to finance companies is clearly a niche, but there are several options with highly competitive terms.

ABL Advisor:  In your estimation, how much control are these lenders exercising on opportunities finance companies can pursue these days?

Goldrich:  I’d say there’s a certain amount of control … there are eligibility criteria that any sophisticated lender to finance companies uses to finance their borrowers. I don’t see that control as being more or less than it has been in recent times. For us, it’s at an appropriate level and when we need something that falls outside of those criteria, we typically can get it. The fact of the matter is that if you can't live within the broad eligibility criteria offered by these lenders, your risk level is probably excessive.

ABL Advisor:  What matters most to your lenders?

Goldrich:  I think it’s reliance on our team members. We give our lenders access to our entire team and there’s no one at North Mill who serves as a gatekeeper. Our lenders speak with our portfolio manager, our chief financial officer, our chief operating officer and they speak to me. Transparency and  sticking to our standards matter most to our lenders. That’s why they can be flexible with us when we need them to be.

ABL Advisor:  What’s your outlook for the markets you serve?

Goldrich:  I think we’re in for exciting times for the next few years. We do quite well when banks are in a tighter environment and I see that happening now. Furthermore, we think that is likely to continue and because of that, we’ve already seen an uptick in our pipeline in terms of quality. As banks stay appropriately conservative, there will be many more opportunities for us in the entrepreneurial independent finance company arena. We are starting to see that now and we feel really good about it.

In terms of competition, there are terrific finance companies and factors out there and without a doubt, we are in a competitive market. We are maintaining our standards and we’ll only compete to the extent that opportunities fit within our criteria. I think the level of competition today is healthy. There’s always someone out there who is overly exuberant. For the most part, our competitors are smart people and are competing in an intelligent manner.

ABL Advisor:  In what other ways do a small business owner’s needs differ a middle-market borrower’s needs?

Goldrich:  Small business owners’ needs are very different from those of a middle-market borrower in a number of ways. For one thing, there is really no difference between the person who owns a small business and the business itself. Middle-market borrowers have more influence over their lender. They get more competitive financing, and the world – perhaps unfairly – takes middle-market companies more seriously. Small business owners have to work harder to get more attention and flexibility from their lenders. And for the most part, forman projections and business plans can sometimes be lacking on the part of small business owners. As a lender in this end of the market, you need to spend the time listening to small business owner articulate their needs.

ABL Advisor:  In considering today’s economic environment, what are the realities finance companies face when it comes to securing their own financing?

Goldrich:  I think the environment is very good for finance companies in this regard. Lending to finance companies is clearly a niche, but there are several options with highly competitive terms.

ABL Advisor:  In your estimation, how much control are these lenders exercising on opportunities finance companies can pursue these days?

Goldrich:  I’d say there’s a certain amount of control … there are eligibility criteria that any sophisticated lender to finance companies uses to finance their borrowers. I don’t see that control as being more or less than it has been in recent times. For us, it’s at an appropriate level and when we need something that falls outside of those criteria, we typically can get it. The fact of the matter is that if you can't live within the broad eligibility criteria offered by these lenders, your risk level is probably excessive.

ABL Advisor:  What matters most to your lenders?

Goldrich:  I think it’s reliance on our team members. We give our lenders access to our entire team and there’s no one at North Mill who serves as a gatekeeper. Our lenders speak with our portfolio manager, our chief financial officer, our chief operating officer and they speak to me. Transparency and  sticking to our standards matter most to our lenders. That’s why they can be flexible with us when we need them to be.

ABL Advisor:  What’s your outlook for the markets you serve?

Goldrich:  I think we’re in for exciting times for the next few years. We do quite well when banks are in a tighter environment and I see that happening now. Furthermore, we think that is likely to continue and because of that, we’ve already seen an uptick in our pipeline in terms of quality. As banks stay appropriately conservative, there will be many more opportunities for us in the entrepreneurial independent finance company arena. We are starting to see that now and we feel really good about it.

In terms of competition, there are terrific finance companies and factors out there and without a doubt, we are in a competitive market. We are maintaining our standards and we’ll only compete to the extent that opportunities fit within our criteria. I think the level of competition today is healthy. There’s always someone out there who is overly exuberant. For the most part, our competitors are smart people and are competing in an intelligent manner.

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