In a move that may ramp up the competition for bankers trying to lend to franchisers, two former Goldman Sachs & Co. investment bankers have started a finance company to make and securitize loans to small businesses.
John R. Shrewsberry and Marc K. Furstein, who were vice presidents for Goldman Sachs until late last year, are running the new firm with partner William V. Trefethen. The company is based in New York and is called American Retail Capital Co.
Mr. Trefethen is the former president of the now-defunct Koll Specialty Finance Corp., Newport, Calif., which had a division that specialized in lending to convenience stores. Mr. Shrewsberry and Mr. Furstein securitized real estate and commercial loans that were originated or bought by Goldman Sachs.
American Retail Capital's arrival on the scene increases the competition to finance franchise owners. Such entrepreneurs typically borrow from specialized finance companies or Small Business Administration lenders.
"The major new competition comes from the nonbanks," said Gary Youmans, executive vice president for California-based Fallbrook National Bank, which specializes in SBA lending. "There's no way you can stop them from coming into the market."
American Retail Capital plans to make 10- to 15-year, fixed-rate term loans to businesses like restaurants, gas stations, and video stores. The company would also provide short-term financing, subordinated debt, or equity capital.
"Retail is the largest sector of the American economy, and it is underserved by the capital markets," Mr. Trefethen said in a recent interview. "We understand the industry and we understand the businesses needs."
Mr. Trefethen said American Retail would target franchise owners with at least five stores and would make loans between $10 to $20 million.
American Retail Capital expects to lend at least $100 million in its first year, and hopes to securitize the assets to raise money to fund additional loans, Mr. Shrewsberry said.
Nonbank lenders typically securitize loans because they have no access to deposits. About $2.5 billion in franchise loans, primarily restaurants loans, have been securitized in the last two years, Mr. Furstein said.
"We're bringing Wall Street to Main Street," Mr. Furstein added. "A lot of these businesses have not had access to capital markets."
The most commonly securitized small business loans are SBA loans, which have set loan terms. Franchise loans are also popular for securitizers because they have a uniform set of borrowers.
James E. Murray, chief executive officer of Washington D.C.-based Small Business Funding Corp., said the efforts to securitize franchise loans would expand the market for other loans. His organization plans to buy and securitize bank loans to small businesses.
"It's another indication of the increased interest in securitization," Mr. Murray said.
