Sharkey:  Again if you go back to 2008 and 2009, the whole market looked like one big asset-based lending market. What will cause this to happen is some meaningful increase in interest rates that will make these highly leveraged structures no longer viable. If there’s an automotive slowdown or a slowdown in certain sectors, this could have quite an adverse effect … particularly for the BDCs that are already trading below book.

There was a survey conducted by the Commercial Finance Association that came out recently and it shows pretty much what one would expect it to show: new business volume is flat or down and the utilization rate on lines is flat … somewhere around 42%. It hasn’t gone anywhere and there’s no growth. But here’s what’s interesting: the end of the report notes that non-accrual loans have “ticked up” up for three quarters in a row and so have charge-offs. They are still at a low level, but both are ticking up. So maybe we’re starting to see some cracks in the economy … some indications of a downturn.

This cycle has been very different than past cycles. We are at budget – we’re growing and we’re doing fine – but we are doing it by market penetration and by doing larger deals. We aren’t closing a lot more deals than we have in the past, but the deals we are closing are bigger. At the same time, the ones that are paying off are smaller. So our portfolio is doing nicely and our new business fundings are up 70%. That works out well because if you lose a similar number of deals and you book larger deals, you don’t need to add more people to manage your business. Your efficiencies improve and you make more money.

That being said, while it’s always been a competitive marketplace, it just seems that much more competitive these days. That’s in line with what I heard from other attendees at this year’s CFA Conference in Austin last month.

ABL Advisor:  Looking at today’s realities in the commercial finance marketplace, how are you positioning MB Business Capital to continue succeeding in 2016?

Sharkey:  I’d say we’re sticking to the tried and true ways of structuring deals. We’re taking what the market gives us and we’re not succumbing to doing things we shouldn’t be doing. From where I sit, that’s all you can do.

I’ve been at this game for almost 38 years … I started lending with GE Capital back in 1978. Recently someone on a panel asked me how this industry has changed over the years. I’ll tell you what I told them – I lend money the same way today that I learned to lend money back at GE Capital. You margin collateral the same way, your receivables are worth the same as they were 38 years ago, you value and liquidate inventory the same way you did back then. The same holds true with equipment and real estate.

It’s really the nature of the competition that has changed and I’m not saying you can afford to be oblivious to it, but there’s a certain way that ABL is done properly. As I said earlier, you take what the market gives you and you accumulate good people along the way. The more good people you can accumulate, the better able you are to compete and be around for the long term.