Farmington Hills investment firm Franklin Capital Group LLC has entered into a deal with a community bank in Jackson, Wyo., Which aims to give the company more “bandwidth” to make deals.
The alternative investment fund focuses on small businesses with debt through the use of cash advance loans to merchants, or primarily payday loans for businesses. Companies that meet Franklin’s investment criteria are given capital to escape high interest debt with the goal of eventually qualifying for traditional bank financing.
Under a new deal, reached late last week, Rocky Mountain Bank in Wyoming will buy the assets of Franklin Capital. The combined entity will be called Wing Lake Capital Funding LLC.
The new deal, the terms of which were not disclosed, provides Franklin Capital with a new range of services it can offer businesses, according to Shaya Baum, CEO of the new entity and chief executive of Franklin.
“We are able to provide financing, advice and restructuring assistance to companies which, due to our cost of capital, prior to this partnership, kind of priced us in many different markets”, Baum told Crain’s. “And it really increases our bandwidth.”
This extra bandwidth is needed, say Baum and Sarah Piteo, director of the fund’s origination. Wing Lake has entered into restructuring deals worth about $ 40 million, which represents about 25 companies, they said. Companies run the gamut in terms of industry.
The fund has had to turn down more than $ 500 million in potential deals over the past 12 months, said Baum, who added that the size of the deal with Rocky Mountain Bank allows Franklin to pursue all outstanding deals. , then continue to grow funding.
For Rocky Mountain Bank, executives say the deal is falling into their wheelhouse in the world of alternative lending, especially companies struggling to raise capital.
“For one reason or another, many of these companies are not eligible for traditional bank financing (…) and providing a solution that puts them on a much stronger financial footing is attractive to us,” said Daniel Ahn. , general manager of the bank. specialized loans.
As of June 30, Rocky Mountain Bank had total assets of more than $ 384.5 million, according to a federal regulatory filing.
Merchant cash advance lenders have been increasingly on the regulatory radar at the federal and state levels in recent months.
The Federal Trade Commission, in a complaint filed in August, said that one – Yellowstone Capital LLC in New York – “misled potential clients and took out extra payments that clients did not owe.”
New York State Attorney General Letitia James prosecuted three lenders in June on charges of threats of violence and “illegal” raising of millions from small businesses.
Baum said there are no other types of lenders at this point working to free these small business owners from the spiraling cycle of debt they are taking on.
“We have exclusive access to the transaction flow simply because there is no one else in our space today,” he said. “There is therefore no intermediary between the merchant’s cash advance and bank financing.”