One new trend worth watching: the "niche-ing" of loan products into specialty credit lines that make it easier for lenders to assess and manage their risks and make it simpler for companies to get the kind of money they need. A good example is ProjectLine, a $50,000 to $500,000 line of credit that Butler Capital Corp., a private lender based in Hunt Valley, Md., provides to companies that might once have had a tough time finding financing. "The typical borrower is a white-collar professional firm. Maybe its growth is tech driven, but it's probably not a dot-com," explains president Lawrence J. Butler. "It isn't big enough to attract equity capital, but it's got real growth potential if it could raise the funds to help it staff up, acquire new equipment, or maybe move to new office space. We'd sit down with a customer, help the owner figure out what kind of credit line could help the company carry out those activities, and work out appropriate terms."
Butler, who has been in small-business finance for more than 20 years, notes a trend that keeps him awake at night: more competition, even for small-business customers. "There was a time when nonbank lenders might have charged as much as seven percentage points over prime. Now rates can be as low as one or two percentage points higher."
Competition has also increased from the credit-card companies, which are aggressively trying to position themselves as something better than lenders of the last resort. American Express launched a major initiative last spring to encourage its best small-business customers to use their cards for inventory and raw-material purchases up to a monthly maximum of $400,000. Another sign of the times: Visa's new Start-up 2000 program, which will provide $25,000 in funding, as well as up to $50,000 in office products and other services, to three outstanding young companies, soon to be selected from a national search.
Three companies out of the hundreds of thousands of young companies may not seem like much, but it's an indication of the new focus on small businesses that more and more banks, credit-card companies, and specialty lenders are now taking. Those developments can only work to your advantage.
Jill Andresky Fraser is Inc. 's finance editor.
Robert Koenig
"I believe in the future, but I can't believe in the valuations I see in deals these days in technology companies. They leave me shell-shocked. There will have to be a correction. But when it comes to the rest of the world -- all those Main Street, America, deals -- there's no frantic mania that's been driving this market. Valuations have been stable -- similar to the level they've been at for the past few years. I don't foresee a correction at this end. This part of the world has been functioning fine and should continue to do just that."
Robert Koenig is the president of Woodbridge Group Inc., an investment- banking firm in Woodbridge, Conn.
Susan E. Woodward
"We envision eventually creating an online secondary market for private-equity deals, which would not trade daily like the stock market but could trade quarterly or semiannually. That could represent a tremendous improvement, because it would create liquidity, which could make some kinds of investment deals easier to do.
"I can imagine this kind of Internet trading market enabling the owner of a very large car dealership to sell a private equity stake in his or her company to an investor, which right now could be a very difficult thing to do. Ultimately -- maybe 10 years from now -- there might be as many as 25,000 private companies whose shares are trading in this type of Internet market. They won't necessarily be very little companies. But they might be companies that could otherwise never have attracted private-equity capital."
Susan E. Woodward is the chief economist and vice-president of research at OffRoad Capital, in San Francisco, an online marketplace for private equity.
Howard B. Adler
"What would restore what we think of as sanity to the capital markets? It would take a jolt in the equity markets. But it would have to be a very big jolt. After all, there are many people who have earned so much more money in today's technology deals than in any other kind of investment that I don't think a 20% drop, say, would change anything. People have grown to accept tremendous volatility as part of what these markets are like."
Howard B. Adler is a partner at Gibson, Dunn & Crutcher LLP in Washington, D.C.
Tom McAuliffe
"There's a mentality now that bigger is better. You see that in the equity markets and the kind of companies people want to invest in, and you see it in banking -- where many banks think they need to get bigger and bigger, even though they may do a worse job of serving their customers. All of those trends may make it harder for smaller companies to raise capital these days.
"I don't know if anything will change here, but there's one thing I do know. Debt is much less expensive than equity. If entrepreneurial companies could recognize this -- and could concentrate on getting financing from lenders who really do understand the risks and rewards of smaller businesses -- they'd be better off. And it won't matter that their only options are debt oriented. They'll still be able to finance profitable growth."
Tom McAuliffe is the chairman of Commerce National Bank, a small-business-oriented bank in Worthington, Ohio.
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