By Phil Neuffer
MidCap Business Credit expanded its product offerings this year by launching MidCap Equipment Finance. Led by Saurin Shah, a co-founder of Nations Equipment Finance (now SLR Equipment Finance), the new business aims to help MidCap become a one-stop financing partner for the middle market.
Any company looking to innovate and grow must diversify and expand its product offerings. For MidCap Business Credit, a long-established asset-based lender, the next stage of its evolution as a company took shape earlier this year when the company launched a sister company focused on equipment finance. To lead the new business, MidCap brought on Saurin Shah, a co-founder of SLR Equipment Finance (formerly known as Nations Equipment Finance).
The process of building out the new unit, which is branded as MidCap Equipment Finance, went beyond hiring Shah and got started when Steven Samson, president of MidCap Business Credit, who previously worked with Shah at GE Capital and FirstLight Financial, introduced his former colleague to Jeff Black, CEO of MidCap. Shah convinced Black of the opportunity that existed in the marketplace for MidCap and then spent months getting the company’s bank partners and investors on board before MidCap was ready to go live. In all, Shah estimates the process took 10 months, starting in March 2021 and ending this past January.
With Shah at the helm, MidCap has already gotten off to a great start, with the new business earning its first deal just weeks afterits February launch and adding a half a dozen more opportunities in the pipeline for the second and third quarters of this year. Aside from his overall equipment finance knowledge, Shah’s experience as an entrepreneur in the industry makes him a solid leader for a company just getting started in the sector. Prior to joining MidCap, Shah was a co-founder of Nations Equipment Finance, which is now known as SLR Equipment Finance, and also at FirstLight Financial. Both were startup financial service companies.
The full team is made up of Shah as president, with Matt Lightfoot leading origination efforts and Al Berger heading up underwriting and portfolio management. Lightfoot and Berger both worked with Shah at Nations Equipment Finance (now SLR Equipment Finance), so the chemistry for the trio is already well established. That chemistry will be invaluable, as setting up the platform will be a total team effort.
“I have great confidence in Matt and Al to source and underwrite deals. I also know that we will receive great back office support from Steve’s team,” Shah says. “My main focus is to make sure MidCap Equipment Finance’s business processes are solid and scalable.”
Shah’s strategy and perspective for MidCap’s new business is built on his more than 20 years in the equipment finance industry, starting from his days with GE Capital, where he and Sansom first met and began working together. Although their paths eventually diverged, Shah and Samson have both risenthe ranks in their respective industries, making for a powerful combination for MidCap.
“I think both of us have earned our stripes on the credit side of these financial institutions. And I think that’s a great pedigree to come from to lead businesses because you are building a book of business with some safety in mind,” Shah says. “Steve can be a sounding board for me on my equipment transactions, and hopefully I can reciprocate as well for the work that he’s doing on the ABL side.”
Although MidCap Equipment Finance is not being entirely built from the ground up since MidCap itself is an established business, there are still plenty of the same risks that come along with a de novo business. In fact, before the business even became a reality, Shah had to take a risk of his own, serving as a contractor while showing MidCap how the equipment finance business could work within the overall company.
“I’ve been in this position before, starting a leasing company from scratch, establishing business processes, underwriting policies, operations policies, systems and business development,” Shah says. “They’re all good skills to have to build a business at MidCap.”
Why Equipment Finance?
For a company looking to start an equipment finance business, recruiting proven industry veterans like Shah, Lightfoot and Berger doesn’t require much explanation, but why exactly did MidCap, a stalwart in the ABL space, want to get into the sector? The answer is equal parts timing and opportunity, although there are also some less obvious contributing factors. For starters, MidCap had built up enough of a capital base to start a new business line.
“We wanted to offer a broader product offering to our customers and to our referrals sources, essentially to be a one stop financing solution for the lower middle market,” Samson says, although he says that he expects both businesses to keep their own individual identities.
Even if they remain separate on the identity level, MidCap Equipment Finance and MidCap Business Credit will be far from siloed off from each other. In fact, Samson says the plan is for there to be a great deal of cross-pollination, with the equipment finance business leveraging the ABL business’ existing strengths in risk management and operations to amplify its results. There will also be plenty of cross-selling opportunities, which feeds right into MidCap’s “one-stop shop” goal as well as its desire to continue differentiating itself as customer focused and responsive.
“Even though we’re growing, we are still a very flat organization and we can turn around a proposal or get to a closing, I think, faster and more efficient than anyone in the market,” Samson says. “And we hope to have that same timing and flexibility on the equipment finance side of the business going forward as we do on the ABL side of the business.”
According to Samson, the ability to cross-sell will also be a boon from a talent recruitment perspective, an exceptionally important differentiator given the current labor market.
“We need to increase opportunities and have opportunities across the platforms to attract talented young people into the business,” Samson says. “Bringing in another business line just increases those opportunities and makes it a more attractive place to work.”
A broader product offering will also help MidCap more efficiently use its capital, with the equipment finance side providing steadier outstandings than the sometimes less predictable ABL market, according to Samson.
Just like with many new companies, MidCap Equipment Finance will be a smaller operation in terms of dedicated personnel, but that is entirely by design.
“We’re going to try to run this business as lean as possible,” Shah says. “We have a great opportunity to leverage finance, operations and risk management folks in Steve’s organization. And that gives us the benefit to get a lot of deals sourced, underwritten and booked with the current infrastructure.”
To start, the dedicated equipment finance team will be made up of Shah, Lighfoot and Berger alone, although, with cross-functional opportunities, other MidCap employees will help in multiple areas, including business development and risk management. On the credit and underwriting side, Berger has experience working with bank leasing companies and independents, giving him an extensive toolkit to pull from as a leader with MidCap, where he’ll build out operations and credit processes as well as legal documentation and systems implementation.
From a business development perspective, Lightfoot has spent a significant portion of his career direct calling on customers as well as cultivating many relationships in the indirect channel.
“In my experience, when we were at Nations, a significant portion of our volume came from the indirect channel. We have to develop relationships with the lease brokers and other intermediaries out there to show us deals,” Shah says.
Thanks to the experience on the roster, MidCap Equipment Finance isn’t going to try a bunch of different strategies to see what sticks. Instead, it will attack a specific part of the market while relying on the strengths of its team members when it comes to preferred industries and types of equipment financed. Shah says the company’s average ticket size will be $5 million, with the potential to go up to $20 million when working with leasing partners.
“When I examine the current marketplace, there are plenty of small-ticket lessors that have the capability to finance up to the $2 million range, and then it seems to me that larger independents are now looking for minimum $20 million to $25 million transactions,” Shah says. “That seems to create this nice opportunity for doing transactions somewhere between $5 million and $10 million.
Shah and his team will also stick to their approach from prior experiences when it comes to the types of companies they work with, remaining largely industry-agnostic aside from avoiding direct oil and gas. The business will also be a generalist in terms of equipment, although it will likely do less in the IT, software and medical equipment sectors than others.
With internal funding targets in mind, Shah and his team are hard at work capitalizing on the immediately positive reception they’ve received from the market. In fact, at the Equipment Leasing and Finance Association’s National Funding Conference in April, Shah’s calendar was full, leaving him with plenty of new prospects and potential partnerships when he returned home. However, ultimately, Shah wants the company’s reputation to be built on its reliability rather than the growth of its pipeline.
“I’d like for customers to trust that we can deliver on our deals and I’d like lease brokers and financing partners to benefit from our speed, streamlined process and honesty,” Shah says. “I always think of repeat business as being a good indicator that you’re doing a good job on that front.” •