CapitalSource has a new way to serve security industry

Acquisition of MainStreet Lender for $100m opens up a new market
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Tuesday, April 20, 2010

CHEVY CHASE, Md.—CapitalSource’s $100 million acquisition of SBA lender MainStreet Lender is a further indication the company has significant interest in making smaller loans to the security industry.

CHEVY CHASE, Md.—CapitalSource’s $100 million acquisition of SBA lender MainStreet Lender is a further indication the company has significant interest in making smaller loans to the security industry. In recent years, before CapitalSource was forced to become a bank to ride out the financial crisis, the company was better known for larger deals: a $100 million line of credit to Interface in 2005; ASG’s $190 million credit facility at the end of 2008; a $15 million debt financing for DTT in late 2009; a $125 million loan to Protect America earlier this year.

However, Bill Polk, managing director of CapitalSource, said MainStreet makes small-business loans in the $250,000 to $6 million range, “below where we’ve been historically, so that opens up that market for us.” He called that portion of the commercial marketplace “a very large market. For a bank lender like CapitalSource is now, this helps us address the broadest range of commercial operations.”

In some ways, too, it’s going back to CapitalSource’s security roots. The company made a large play in security in 2005 with the acquisition of SLP Capital, which Polk was running at the time as president. SLP placed more than $400 million in capital for hundreds of companies between 1991 and 2005, in amounts ranging from $300,000 to $15 million. It is perhaps ironic that SLP looked forward to bigger deals, up towards the $50 million mark, when CapitalSource bought it.

“To provide that kind of financing capital, SLP had to be part of a larger organization with that kind of balance sheet,” said Polk at the time.

Now CapitalSource may be looking to return to what SLP called its “sweet spot”: $2 million to $5 million deals, much like its financing of World Wide Security earlier this month. At the time, CapitalSource director John Robuck said, “we think there are a lot of great businesses out there that are smaller in size.”

CapitalSource will begin working with many smaller companies. This MainStreet asset purchase includes the acquisition of a $111 million portfolio of small balance SBA and conventional loans, and the acquisition of a non-bank SBA license. Additionally, MainStreet origination, underwriting and servicing personnel will join CapitalSource to manage and grow the SBA portfolio.

Further, said Polk, “it will allow us to focus on smaller business real estate transactions, which can be part of a small alarm company’s operations.”