Emergent Business Capital, a four-year-old small-business lending company, has grown fast by specializing in loans banks don't want to touch.

The Greenville, S.C., firm opened its doors in 1992 and leaped into the top 10 of Small Business Administration lenders by developing niche lending specialties.

"Our core management group, including myself, did not have experience in commercial lending," Emergent president John Bickley said. "That may have helped us be more innovative."

The firm's growth illustrates the rapid expansion of nonbanks in the small-business area - and how banks' rejected customers can become other lenders' treasure.

Emergent makes SBA-guaranteed loans to budget hotels, convenience stores, child-care facilities, restaurants, and nursing homes - industries usually shunned by banks because of what Emergent officials say is a "perception of high risk."

Emergent's loans range between $100,000 and $1.5 million. The company's SBA 7(a) loan volume has increased about 50% in each of the last three years. It has 104 loans with a combined balance of $72 million.

The firm's parent company, Emergent Group, services and sells mortgage loans, small-business loans, and used-car loans. Last year about 77% of the loans were mortgages.

While many banks tend to view SBA lending as a cumbersome process that requires too much paperwork and generates too little revenue, Mr. Bickley said the loan programs can be lucrative.

"If you are focused and know where it works best, it can be very profitable," he said. "If you aren't committed to it, it won't work."

With the SBA loans, Emergent can offer longer terms and higher loan-to- value ratios and charge as much as prime plus 2.75%, which is higher than the typical small-business bank loan rate.

Emergent plans to open a small-business lending office in Texas in 1997 and target a new underserved industry each year to expand its lending operations.

Tony Wilkinson, president of the National Association of Government Guaranteed Lenders and a former banker, said banks may miss good prospects if they overlook restaurants or hotels - two industries with historically high failure rates.

"If it's a good deal, the local commercial bank should have an appetite for it, not because of the industry but because of the management," Mr. Wilkinson said.

This fall Emergent hired Kenneth E. Moore, who specializes in lending to Asian and Indian budget hotel owners, as its Gulf Coast regional manager based in Panama City, Fla.

While a traditional banker might think Mr. Moore has a narrow niche, it is a large one. The leading Asian-American hotel owners trade group has a whopping 400,000 members, who primarily operate family-owned hotels in the Southeast.

"There has been little or no interest from traditional institutions, especially banks, to lend to hotels," Mr. Moore said.

Mr. Moore said the loans can be very profitable for lenders who know the industry. He has developed a referral network of hotel owners, franchise development officers, and commercial mortgage brokers who help him drum up business and avoid untested entrepreneurs.

"When we are sitting in front of the customer, we have the ability to convince them that we know enough about their business to make a good decision," Mr. Moore said.

Emergent customer Cindy Hogan, owner of the Terrell House Bed and Breakfast in New Orleans, said she was surprised that local banks refused to finance her business.

"Emergent saw it was a good venture, especially here, because New Orleans thrives on tourism," Ms. Hogan said.

An SBA preferred lender, Emergent can make a decision on a small loan in a few days and take three weeks to approve an SBA loan to a hotel owner.

The four lenders in Emergent's Panama City office package the applications and work with attorneys and title firms to close the loan. Each lender has the authority to make loan decisions.

"We spend time getting to know an industry so we understand it better than any others would and we're able to get comfortable with the risk and the reward." Mr. Bickley said.

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