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AloStar Business Credit and Lenders Funding: Sharing a Common Vision

Date: Aug 19, 2014 @ 07:00 AM
Filed Under: Lender Finance

Fourteen years ago, Lenders Funding was founded by Bob Zadek on the premise that supporting middle-market companies and the factors and lenders which finance them with a quick, efficient source of capital via asset-based lending and factoring was a way to help maintain small businesses and jobs across America. The idea came to Bob Zadek one Friday morning when he received calls from two different factoring clients asking if he was interested or knew of anyone who would be interested in participating in deals that were too big for the clients to finance themselves. Bob realized if he had two clients that were in need there were probably many others. By the following Monday, Bob had the business plan written, documents drafted and was ready to launch. As the business grew, and the model was refined, Bob was joined by Harvey Friedman as Chief Operating Officer and Chief Credit Officer, and by Jean Madden as Controller. Between them they have 110 years of ABL and factoring experience.

Photo of Robert Zadek Esq. - Founder - Lenders Funding LLC

Over the years, the business has grown from an initial capital investment of $300,000 to a $37 million portfolio. Even in this shaky economy, Bob believes “the market is active and very healthy.” When asked to explain he said, “I can’t speak to the econometric reasons since I’m not an economist, but banks have been restrictive as a result of regulatory pressure. Loan demand in the middle market is fairly constant; and if banks can’t satisfy it then businesses with legitimate credit needs seek help from the non-bank regulated market. They pay more for the money, but they get a reliable lender who understands their business and is free to make a loan if it makes credit sense. We are a part of that efficient delivery system.”

Positioned for growth, Bob and Harvey decided in the fall of 2013, that it was time to find a new lender. However, interviewing banks was frustrating. “Bankers like to lend to a business model they understand,” Bob notes. “They typically don’t have much imagination and if they do, regulators discourage them from using it, since regulators never, never, think outside of very small boxes. We make money and have squeaky clean financials. We are the ideal borrower and we have an unusual business model.”

Photo of Luke Graham - Managing Director, Lender Finance - AloStar Business Credit

Luckily, Lenders Funding's unusual business model matched AloStar Business Credit’s model perfectly. In the fall of 2013 at the CFA annual convention, Bob and AloStar’s Luke Graham met based on a referral. It was, as Bob puts it, “love at first sight … I thought 'where has this banker been all my life?'”

Luke Graham, head of originations for AloStar Business Credit’s Lender Finance division, had started the Lenders Finance unit of AloStar a few months prior. Luke had made his career in the lender finance arena of asset-based lending and had come to AloStar because he believed that the product complimented AloStar’s business model.  He had known of Bob Zadek for years. As Luke puts it, “Bob pretty much drafted UCC article 9 as it relates to factoring and Bob has been doing this well … forever.”

Conversations between Luke and Bob continued and in time, they pulled in Harvey Freidman who runs Lenders Funding with Bob. Luke, Harvey and Bob, along with John Thomas and JD Gettmann from AloStar, put the deal together. All involved agree that there were some unique considerations, but not necessarily challenges, in getting the deal to work.

From an underwriting perspective, there were some risks that had to be overcome. Lenders Funding has a small management team – three people in three different offices nationwide. There are myopic lenders who would not even view it as a real company. Bob, Harvey and Jean have investors in the form of subordinated debt and they track and monitor the collateral very, very well. Thus the deal was able to be structured like any typical asset-based lending deal – on a borrowing base formula. However, there were a few concerns, such as what if something happened to one of them. In order to mitigate that risk, a backup servicer was put in place … one which has an existing factor that can step into that role in the event anything happens to Bob or Harvey. It’s a servicer that AloStar and the team at Lenders Funding knows and with whom they feel comfortable.

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