Alternative Financing Options

While it is no secret that the credit markets are experiencing unprecedented turmoil and uncertainty, and the causes and the timing of a strong recovery remain hotly debated topics, the real question that family owned and closely held business owners are asking is: What can we do now about real business capital needs and shareholder liquidity needs, and where can we look if the traditional source of capital - our local lender - is less prone to lend more money?

de Visscher & Co. has a long history of focusing on more “family friendly” and longer term sources of both debt and equity capital for our clients. In response to the current credit crisis we have been surveying some of our capital providing relationships to gauge their current interest, and wherewithal, to provide funding in the near term. While many are still making loans, it is some of the non-bank-related sources of capital that are particularly active and worthy of a closer look.

Banks Not Impacted by the Mortgage Crisis – Some institutions were not involved in sub-prime mortgage lending and have hardly been impacted by the current crisis. They remain actively looking for good credits and long term relationships.
Non-Bank Commercial Finance Sources – a corps of commercial finance sources, that often struggle to compete with aggressive bank lending in long running, overheated market periods, are enjoying stronger deal flow as traditional senior lenders have retrenched. Although many have an asset and collateral orientation, they are actively lending on working capital, equipment and real estate assets.
Limited Partnership Specialty Finance Groups – a number of boutique lending shops have raised their capital from limited partnership investors instead of bank depositors. Thus they are not subject to the same restrictions, capital requirements and regulatory pressures that some of their institutional banking brethren are encountering. A subsection of this group that is expected to play an emerging role as a source of capital is foreign investment/sovereign wealth funds. This source of capital should play a more active role in today’s market and has exhibited an increasingly sophisticated approach.
“Junior Capital” Alternatives including the use of:
- Subordinated Debt Sources - that offer “interest only” financing for a few years and provide debt capital amounts over and above the levels that the traditional banker cannot accommodate.
- Patient Capital Equity Sources and Minority Investors – that tend to be more “family friendly”, and “patient” in nature, in the structure of their investment terms. These sources, a mix of family offices and private family investors, take a longer term outlook, typically a 5–7 year, or longer, investment horizon. For these reasons, they are often the most attractive investment partners for family owned and closely held companies.

- Jim Murphy (jmurphy@devisscher.com) and Ross Sealfon (rsealfon@devisscher.com)