In the early 1990s, George M. Miller 2d was a Tennessee investment banker who constantly ran up against small companies shunned by banks.

So he started a firm in 1992 called Sirrom Capital with some old New York money, and built a booming small-business finance company by targeting entrepreneurs that banks won't touch.

Mr. Miller and some of his clients argue passionately that much of the business Sirrom does is bankable business. It just takes commitment and, sometimes, creativity - both of which Mr. Miller says banks have little of when it comes to small-business lending.

"Banks think the only thing you can lend against is equipment and inventory," he said. "Today those rules don't mean anything; nobody has inventory, nobody has equipment."

Sirrom is yet another example of how nonbanks are gearing up to pick off small-business customers from banks wherever they can - of companies that are bringing different mindsets, and their own rules, to small-business financing.

Mr. Miller began Sirrom with $10 million in seed money from one of his clients, the blue-blood Morris family of New York (the company's moniker, pronounced Sir-ROM, is the Morris family name spelled backward).

His bet paid off. Sirrom, which went public in February 1995 and has a market capitalization of $350 million, has cranked out $220 million in loans to 110 small businesses across the country. Last year the company raked in net income of $8 million, 139% more than the year earlier, for a 10% return on assets and a 22% return on equity.

"In every loan we've made, the company has been to see the banks first," said Mr. Miller, 36, an ex-Marine who served tours in Grenada and Beirut before entering the business world. "The banks don't want to go out to make $1 million to $3 million to exciting growth companies based on the credit of the business."

A lending officer from a Nashville-based community bank grudgingly gave Sirrom credit.

"They have some good lending expertise and some good people," he said. "They have greater appetite for risk than banks do."

Mr. Miller, whose father was a banker, says he expects Sirrom to hit $750 million in assets by 2000 and then keep growing nationwide. The reason: Though banks are inherently leery of fast-growing, cash-hungry small businesses, Sirrom can use creative lending, equity participation, and underwriting techniques to serve that ever-growing niche profitably.

"They've hit upon a formula for finding small businesses that are growing and profitable and have good management, and giving them the capital to reach the next level of their growth," said Robert F. Williams, an analyst for Equitable Securities Corp.

Rich Roberts, president of PMT Services Inc., a Nashville-based credit card processor and one of Sirrom's earliest customers, said his business wouldn't have taken off without Mr. Miller.

In the early 1990s Mr. Roberts tried to get financing for the credit card processing company, which was generating $10 million in revenues and was close to breaking even. Mr. Roberts approached a half dozen banks, but none even returned his phone calls.

About this time Mr. Roberts met Mr. Miller at a charity event and started talking business. In 1992, Sirrom lent the company $2 million. Two years later PMT went public; it now has a market capitalization of about $800 million.

The deal made "the banks look like chumps," Mr. Roberts said. "He's got a whole industry based on banks being reluctant to make small-business loans."

Charles R. Howell 4th, president of Corporate Flight Management in Smyrna, Tenn., borrowed from Sirrom in 1992 to expand the business and restructure debt. He said that bankers didn't understand his business, an aircraft maintenance and chartering service.

"Banks still seem to be stuck in the mold where if you don't fit into a 10-point checklist, they won't do business with you," he said. "They're kind of simple-minded."

Working through a nationwide referral network that includes venture capitalists and accountants, Sirrom targets service companies growing 50% or more a year that have been in business for five to eight years and rack up $5 million to $50 million in annual sales, Mr. Miller said.

Because many prospects have few traditional assets to lend against, Sirrom evaluates "soft assets," such as a operating licenses or mailing lists, Mr. Miller said.

"We are very, very aggressive, and we understand how to price risk," he said. "Instead of saying no all the time, we see if we can price it to make money."

Sirrom typically makes loans of $500,000 to $5 million at a 13.5% fixed rate. In addition, it takes a five-year warrant, exercisable at a penny a share, to buy 3% to 15% of the borrower's fully diluted common stock. Sirrom exercised its warrants after PMT Services went public in 1994 and sold the stock for about $1.2 million.

At yearend 1995, Sirrom had warrants valued at $11.5 million on 86 companies and had cashed in on 13 warrants for $5.3 million.

Besides bolstering returns, converting the warrants helps offset loan losses, which have been relatively low: $4.1 million in realized losses through the end of 1995.

Mr. Miller gives a great deal of credit for Sirrom's strides to its six loan officers, who have a mix of financial and entrepreneurial backgrounds and oversee geographic regions. Each manages a portfolio of up to $50 million.

The six average one loan closing each per month. They are paid more than bank lenders, but Mr. Miller said he doesn't cotton to people reluctant to give 100%.

"It's a place where if you do your job and work hard and accomplish your mission, you'll be taken care of," he said. "If you slack and don't pull your share, you'll be fired."

Mr. Miller said that he already has met with companies - including banks - that have expressed an interest in buying Sirrom. But so far he's not biting.

"We've talked to them," he said, "but we don't have any intentions of selling the business."

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