It’s always been exceptionally tough for high-growth companies to attract traditional bank financing. But it became next to impossible after the financial meltdown. The tight lending climate is creating an opportunity for Commerce Bridge, a Bellevue commercial lender which just landed $8 million to bankroll fast-growing, mid-stage companies that are growing by 20 percent or more.
“Typically, when you have growth rates that are excessive like that, the companies tend to have fairly substantial working capital needs,” Commerce Bridge’s Alan Hallberg tells GeekWire. “And given where the equity markets are today and given the fact that they don’t have access to traditional bank financing, we provide a happy medium.”
Founded in 2005, Commerce Bridge previously raised $5 million across two funds. The firm has kept a pretty low profile over the years, never really touting its services. But Hallberg and President John Otter are tied into most of the angel groups, VC firms and corporate law firms, all of which serve as a source of deal flow.
The latest capital, provided by individual investors and small institutions, will be used to lend money to Pacific Northwest companies in a variety of sectors, said Otter.
Typically, the firm is looking to lend between $500,000 to $1.5 million, trying to find companies that may fall outside the sphere of the the venture capital ranks. Past recipients of the capital include online outdoor retailer Altrec and software-as-a-service company Safetec Software.
Silicon Valley Bank, Square 1 Bank and others also target high-growth businesses, but Hallberg said they tend to focus more on venture-backed companies. Oftentimes, Hallberg said that the firm’s clients choose to take on a short-term loan rather than forking over a chunk of equity to angel or venture capital investors.
That allows companies to negotiate their next equity round from a position of strength, said Hallberg. “We are able to fuel that growth and get them to the point … where they are able to forestall that (financing round) to a later date when they are not giving up as much of the company,” he said.
The firm is currently negotiating deals with an angel-backed clothing manufacturer that’s generating about $1 million in cash flow every year and a profitable Northwest retailer.
“The banks have left a pretty large void in the market,” said Hallberg. “We are doing deals that banks can’t do or won’t do.” Angel investors and venture capitalists aren’t filling that gap, oftentimes because the companies don’t fit the profile of a traditional venture-backed deal.
“There truly is this part of the local economy where you’ve got high-growth companies where there is no obvious solution for their funding,” Hallberg said. “That middle ground is tough.”
Commerce Bridge competes against California firms such as Montage Capital and Agility Capital, but Hallberg said they have enough deal flow in northern and southern Some firms also tend to focus on distressed assets, and that’s not an area of interest for Hallberg.
“We are looking for the growth stories, and for whatever reason we haven’t found one that is directly competitive,” he said.
Perhaps the closest competitor in the Seattle area is Lighter Capital, the newly-formed firm from Andy Sack that was previously known as Revenue Loan. It focuses on loans under $500,000, which is the minimum for Commerce Bridge.
With the new cash, the firm plans to loan money to about seven to nine companies in the Northwest. But that number may increase as Hallberg and Otter raise more money, with the firm leaving the possibility open to raise up to $30 million in the current fund.
As far as Hallberg and Otter see it, there’s more than enough deal flow in the Pacific Northwest.
“We don’t see any significant challenges to getting $30 million deployed here in the region,” Hallberg said.