By Joe Salimando
As the old saying goes, “Everyone talks about the weather, but no one ever does anything about it.” For John Cain, president of Wiseway Supply in Florence, Ky., substitute “weather” with “the horrible lending environment.”
Throughout 2010, Cain was regularly hearing from people he cared about—customers, potential customers and fellow distributors in both electrical and plumbing—that obtaining mid-level commercial loans from bankers had become impossible.
Late that year, he decided to do something about it—a choice that has directly led to the establishment of a new enterprise focused on small business, Alliance Business Lending (ABL). The company specializes in asset-based lending and exists as a resource for loans of $750,000 to $3 million for companies that have been turned down by their banks.
John Cain, chairman of IMARK Group, was not a financial newcomer; he is an attorney and serves on the board of the Bank of Kentucky, the sixth-largest bank in the Cincinnati metro-area.
Cain is also involved in growing the Elite Distributor Insurance Company (EDIC).
Putting cash to work
“At the time [2010] if you’ll recall, we all heard a great deal about cash on the sidelines,” Cain recalled recently. “The idea behind this effort was pretty simple—to find a way to marry up the people with the money with those businesses which really needed it.”
The idea, however, didn’t lead to a snap decision. Cain dove into research of how money could be lent, by a non-bank, in relatively small loans. He explored asset-based lending as a possible solution.
The ABL website explains asset-based lending as the opportunity for a business to obtain a loan against the assets on its books. The definition calls it a “collateral-focused process” that “will tolerate a higher level of financial leverage.”
Obviously, this is not an area into which one enters lightly. Cain has two partners in ABL, men who have combined experience of more than 65 years in asset-based lending.
Above: From the ABL home page.
Building capacity
Even today, one can’t lend out money without first gathering in capital.
Cain and his partners have invested time and resources in building ABL as follows:
- Raise $15 million in investor capital. Cain has a significant amount of his own money in there.
- Find financial resources, using that base, to borrow additional funds to loan, if and when they are needed (“revolving” credit lines).
- Hire people with experience to evaluate borrowers (the company now has a staff of four).
“Yes, we will borrow money, when needed, to lend it,” Cain acknowledged. “The $15 million we raised in initial capital will support a $100 million loan portfolio.”
A resource after the bank
Even as the 2008-2009 freeze in the financial industry has eased, bankers in 2012 are still reluctant to loan money to small businesses. That’s why ABL has targeted a relatively small range ($750,000 to $3 million) in loan size.
“We think your bank is still your best first stop,” Cain said. “But if, for whatever reason, the bank declines or will not lend enough, we are a legitimate option for companies with good businesses.”
Cain noted that his company is not competing with a business’ bank; it is getting referrals from the banks.
“Look at it this way—if I’m your bank, and I turn your loan request down, there’s a chance you’ll go to another bank, and you might be approved there. If that happens, I lose your business—you’ll take all of it and put it with the bank that loaned you money. But the bank that turned you down is actually likely to recommend you try ABL. We’re not a competitor. If we lend you money, we won’t ask for the rest of your financial business,” Cain said.
Customers targeted
According to Cain, initially ABL will be somewhat regional, seeking borrowers in the Midwest. ABL’s targeted industries include manufacturers, distributors and service businesses—any business with accounts receivable or inventory. He serves on ABL’s board and credit committee; there’s a certain internal level of expertise in industrial distribution and banking.
Why would Cain get into the lending business in 2012? “We’re not looking to climb aboard a sinking ship,” he answered. “There are a lot of people in business these days whose ships are not sinking; they’re just taking on a little bit of water. This makes the banks shy away. We think we can help.”
In the process of diving into a new industry, Cain has learned a number of things. He said raising the $15 million in capital was easier than he thought. Wells Fargo has been a willing partner (for the revolving credit line) and the large companies in the small-market asset-based lending business are still, themselves, small—with the largest having about $1 billion in loans.
All the above might sound as if Cain and his partners are providing a public service, and perhaps they are, but these are still true American capitalists. Asked about the future, Cain’s answer was enlightening. “We see a five-year horizon. This isn’t the first asset-based lending company that’s been started up during difficult financial times. Over history, what’s typically happened—what’s likely, actually, if we succeed—is that we’ll field a buy-out offer at some point.”
Note that there is at least one major limitation on what ABL will do. Based on common sense, perhaps, or on what’s happened in the past few years, Cain said it would not make any construction loans.
Tagged with financial, tED