Price Waterhouse Cooper’s 2015 Annual US Capital Markets Watch indicates that the US capital markets as a whole raised more funds in 2015 than the prior year, but through a lesser number of deals. The number of capital market transactions slowed down substantially from 2014 and 2013, due to increasingly cautious investors looking to minimize risk due to increased market volatility, uncertainty around global economic growth, rising interest rates, high private valuations due to high levels of venture capital funding and an active mergers and acquisitions market. (PWC’s Deals Practice, 2015 Annual US Capital Market Watch). Putnam’s Capital Markets Outlook, says global investors are skittish, due in part to the US’ inability to recover quickly from a stagnant economy. And, recent surveys show the first tightening of credit conditions for commercial and industrial loans since 2011. (Putnam Investments Q1 2015 Capital Markets Outlook).
What does all this mean for the state of business capital on Long Island? At first blush one might assume it means less capital available for the business community. Yet, when one looks at the on line employment search engines, there is a higher number of commercial lending jobs available on Long Island than there has been in several years.Yellow pages lists 287 banks on Long Island including several dozen new banks or expansions of off Long Island banks in recent years. SBA’s Office of Advocacy says small business borrowing conditions including the cost of borrowing, continued to improve in 2015. (Annual Report of the Office of Economic Research, FY 2015/Dec. 2015 SBA).Talk to the CEO’s or Regional Market Heads of leading Long Island banks and they’ll all tell you Long Island remains an active and lucrative place for business investment and lending (as evidenced by multiple recent expansions).
So- what is the state of capital for businesses on Long Island?
The quick answer- mixed as usual.
Creditworthy businesses are still getting access to traditional capital sources- from banks, credit unions, insurance companies etc. As PWC indicated in its report, venture capital has been increasing. But- are the small businesses of the region benefitting from the national equity and debt markets or the conventional credit sources? Not according to some small businesses and chambers on LI. The good news is, although conventional sources are not always available to meet the needs of the LI small business community, there are several trends in small business funding that are benefitting LI’s entrepreneurs.
Two of those resources are increasingly being used by the millennial and older entrepreneurs alike- online alternative government related lenders including those in the national system of US Treasury Community Development Financial Institutions (CDFI’s) and online private lenders and investors. This latter includes the so called “crowd funders.” A recent LIBN article testifies to the increasing use of crowd funding-where firms sell stakes to thousands of investors and provide perks to people who donate. The entire trend to obtain funding online has created an expanded world of capital access for LI’s small businesses. Online financing –whether equity (investment) or debt (loans)- does require a certain level of sophistication and computer expertise. This is where the millennial entrepreneurs and employees have an edge. A third trend which is benefitting some of the healthier small businesses is securitization. More and more securities and guaranteed products are being offered in the market. For those of you who saw “The Big Short” movie about securitization of housing financial instruments, translate that now to the commercial arena. Increasingly, public markets are being used to facilitate financing for our commercial enterprises and one can only hope that, in a few years, we won’t be seeing “The Big Short-Commercial Version” movie about collapse of the commercial market.
Bottom line- LI’s small businesses need to take advantage of every type of funding out there- from friends and family to conventional bank/credit union/other products to alternative lenders in the accounts receivable, merchant banking arena to government supported programs to on line private and public sector sources.
The state of capital access on Long Island is only as good as the last dollar raised or borrowed by our entrepreneurs. For every dollar raised or borrowed however, businesses are being strengthened and jobs are being created. So for future views of the state of capital on LI- look to the economy in general. A thriving economy means funding is available to support it.
This article is in part based on a speech about “The State of Capital on LI” given by Roz Goldmacher the 2016 LI Commercial Real Estate Expo.