a $80 million line of credit from a bank group led by National Westminster Bancorp. As director of new-business development at Medallion Funding Corp., Mr. Murstein has carved out a niche in the highly specialized business of financing medallions for New York City taxi owners. Natwest is leading an international group of eight banks that includes U.S. lenders Fleet Financial Group, Bank of Boston Corp., and Shawmut National Corp. The medallions are a bigger business than you might expect. Cab owners who hope to troll the streets for customers with the sanction of city authorities are required to attach the green metal medallions to the hoods of their cars - and they cost about $200,000 each. Relying on a Small Business Administration program that matches every dollar Medallion Funding lends with $3 of SBA money, the company has lent more than $300 million to minority taxicab owners since 1979. But Mr. Murstein, whose family has been in the taxi industry for 60 years and is the largest shareholder in Medallion Funding, said growth has been limited both by the number of cabs on the city's streets and by the restrictions that are placed on the SBA program. "One thing I want to start doing is lending to nonminority businesses, which tend to have larger fleets," he said. "And we're starting to diversify outside of New York." Mr. Murstein, who hopes to double the size of Medallion's portfolio to about $200 million over the next 18 months, pointed out that most major cities - Washington and Seattle are exceptions - have medallion systems similar to New York's, although the cost of the medallions is typically a fraction of what it is in the Big Apple. In addition to diversifying geographically, Mr. Murstein has already begun lending to other businesses that he says have similar characteristics - include dry cleaning and coin laundry businesses, small broadcasting companies, and the pay phone industry. Medallion has also provided financing to operators of fast-food franchises. Mr. Murstein said the line of credit from Natwest will enable him to pursue his new goals. Medallion will continue to be restricted to minority lending, but a newly formed holding company, Tri Magna Corp., will start originating loans on an unrestricted basis. Mr. Murstein said he was able to secure the financing from Natwest at the London interbank offered rate plus 140 basis points, a favorable rate made possible by Medallion's squeaky clean loan portfolio. Medallion has never had to write off a taxi medallion loan and has an overall writeoff rate of about 0.75%, he said. Mr. Murstein attributed that record to the "great collateral" that secures most of the loans. In the rare event that a taxi owner falls behind on payments, he said, the lender can merely pry the medallion off the borrower's car, forcing the owner to bring the loan current or face going out of business. Mr. Murstein said Medallion Funding currently lends at about 150 basis points over the prime rate, or about 10.25%, to cab owners. The average loan to value ratio is about 60%. As profitable as those terms are, Mr. Murstein said, the few banks that lend on medallions lack the expertise to evaluate the loans, and charge as much as four points over prime. Mr. Murstein said his competition comes from a handful of other small specialist firms, and notes that the field is even more wide open in the three new markets he has targeted: Boston, Philadelphia, and Newark, N.J. He also said small business finance companies like Medallion are likely to pick up extra business as a result of consolidation in the banking industry. Borrowers who believe that their businesses are too small to attract the big merged banks already are looking for alternative financing sources. Mr. Murstein said. "We've been getting a lot of calls."
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