Bigger Dreams: Most middle market entrepreneurs have bigger dreams than traditional sources of capital are willing to finance.  Rumors have it that Goldman Sachs is now targeting the middle market as source of incremental growth for its banking business, but that alone is not going to solve the problem.  Regulatory changes in recent years have constrained senior lenders’ ability to finance growth, in particular in connection with growth by acquisition.  Mezzanine financing is available but mezzanine players continue to target total returns in the high teens to low twenties (including warrants and voting rights under certain circumstances) and, although covenants are less restrictive than those for senior debt, the penalties for tripping a covenant are painful.

Easy Co-existence: Enter New York Private Finance.   Our loans to middle market owners and investors co-exist easily with both senior and subordinated debt and even tend to make both classes of lenders more comfortable with the overall corporate credit. The reason is that we lend money directly to private entrepreneurs, who typically inject the funds into the company as an equity contribution, thereby strengthening the company’s credit.

Once a middle market company has been leveraged to the degree appropriate to its business risk, additional capital becomes extremely expensive and hard to find.  A personal loan to the owner(s) from New York Private Finance can provide additional capital without the high cost and dilution of ownership/governance required by private equity investors and at more reasonable cost than mezzanine.  Our loans carry a current coupon of LIBOR plus 7.5%, which is far less than mezzanine’s low to mid-teens coupons.  Even more important, unlike private equity and mezzanine debt, our loan structures do not seek either an operating or governance role, even in the event of a covenant default.   To that point, our advance rates are designed to protect the borrower from the consequences of a default, as we anticipate that there may be bumps along the road of a typical five or six year loan, and we have no intention of playing “gotcha.” The ability to draw $5MM to $20MM over a two year period enables one to grow methodically – and even opportunistically.

Maintaining Maximum Control: The result is a “growth-friendly” loan designed to facilitate incremental investment while maintaining maximum control by the entrepreneur.  It is little wonder, then, that our clients keep coming back to raise new capital from New York Private Finance as their investment opportunities expand and their wealth increases.