Entrepreneurs; It's time to seize the day
In 44 years of lending, I have never seen a good business idea that couldn't be financed in the U.S., especially in Chicago. That's going to be true in 2017 as well. Like our architecture, Chicago has the world's most diverse range of lenders anywhere, coming in all shapes and sizes and functional types and histories. If a business has any reasonable chance of success, someone in this market at this time will find a way to finance it.
The range of lenders available to entrepreneurs, large and small, is about the same as when I started lending in 1974. There were and are large international banks, metropolitan banks, regional bank holding companies, community banks, national privately and publicly owned finance companies, small private finance companies and factors like us, Prairie Business Credit. Competition among all of these lenders has been fierce and ongoing as witnessed by the number of both failed lenders and borrowers.
In addition, equity providers and crossover lenders/equity providers, have flourished with the greatest increase coinciding with the leveraged buyouts and hostile takeovers in the 70s to the early 00s. Drexel Burnham started the trend with a successful bond fund that provided start up financing for MCI, the beginning of the deregulation of the telecom industry. The IPO market has largely replaced those funds, so common today that it is unremarkable.
The most recent innovations in business financing are "Crowd funding" and "Fin techs." There are occasional news reports of crowd fund borrowers' successes, but because they are small and without standard reporting requirements, any statistics about their success are guesses. Those providing crowd funds are individuals whose returns aren't knowable and they finance businesses ideas that aren't appealing to professional lenders. I predict this innovation will retreat to being a form of charity, if it hasn't already.
Users of Fin techs' loans seem to be companies desperate for working capital, whose plans need to work out to perfection for the borrowers to survive. There are a few well publicized and heavily advertised Fin tech lenders, an approach that evolved to commercial lending from the "merchant advance" lenders started 10-plus years ago.
The merchant advance lenders originated by financing anticipated credit card receipts and concentrating in retailers deemed too risky for any other lenders. The commercial Fin tech lenders rely on capturing a portion of the borrowers' daily bank balance to quickly and relentlessly repay their loans, which can only be successfully repaid from collected profits, if there are any.
According to recent reports in the financial press the losses anticipated by these lenders' models have significantly underestimated actual loan losses, alarming their investors. The lenders responses to these losses are reported to be increasing the borrower's rates, an action likely to only increase defaults. In a healthy and free market, lenders as well as borrowers come and go. Some innovations are successful and some are not. May The Receivables Exchange (TRE) rest in peace. I believe most Fin techs will follow TRE.
My lending career has delightfully coincided with the post World War II tidal surge of a new capital availability that followed the wide adoption of the UCC in 1954 and a series of significant bank deregulations. Though almost every business can get financed these days, not all will be financed successfully. In Prairie Business Credit's 24 years of lending our own money to the most challenging borrowers, the young untried but radically growing or recovering businesses, we've graduated 70% of our clients to conventional or self-funding. Lending, like any good vendor client relationship works best when both parties succeed. It's good to know your lender's track record.
All the working capital that any good and not so good ideas want in 2017 will be available. So if you or someone you know has a commercially viable idea championed by an experienced leader, talk to a few lenders including Prairie Business Credit. It'll get financed.
• Trevor Morgan is founder and president of Prairie Business Credit in Naperville. firstname.lastname@example.org.