In addition to the mega players, the commercial finance industry is populated by hundreds of smaller firms, such as Manchester Commercial Finance LLC. This 2-year-old Minneapolis company serves businesses in the upper Midwest that need up to a $1 million line of credit. Its average loan is $500,000.
"We are an asset-based lender and typically do transactions a bank won't do," says Manchester president Stephen Bakke. "These could be companies with fast or erratic growth, those with unusual seasonal fluctuations, or those that have unprofitable years or are highly leveraged. They could also be firms that require a financing decision faster than a bank can make it."
Manchester focuses on collateral lending and monitors its loans closely, says Bakke. It often requires weekly or even daily reports from its small-business borrowers. The company is not so concerned about the current profitability of a borrower--but it definitely considers future growth potential. In exchange for this credit rating latitude, borrowers pay higher interest rates.
In addition to asset-based lending, some finance companies purchase accounts receivable or invoices in conjunction with offering financial services like collections. Custom Data Services Capital (CDSC) in Baldwin, New York, for example, provides its small retail and service company customers with private-label credit cards and accounts receivable funding. "If it's a retail store, for example, we provide [the store] with a credit card it gives to its customers. This allows us to track receivables," says CDSC president Leonard Leff.