Many investors and entrepreneurs have found out the hard way that their community banks are simply not in the lending spirit.
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After all, market volatility over the past few years has left many financial institutions struggling with weakened balance sheets. However, there are options for the individual looking for a new investment or available capital to finance a small business.
In many cases, that opportunity is in private equity.
"As banks and other financial institutions find themselves unable to lend or invest and shy away from opportunities which are not guaranteed, businesses of all sizes will be driven to the private market to meet both their debt and equity funding requirements," said Bruno Raschle, founder of the international private equity firm Adveq.
Private equity firms pool capital from wealthy individuals and institutions, such as insurance companies and pension funds, then look for companies to invest in. Private equity deals include leveraged buyouts, where the firm buys a majority stake to give shareholders liquidity, as well as growth investments, where the firm provides capital to help an established firm grow to the next level.
But the potential of private equity doesn't end there.
Russ Garrow, of Vancouver-based Garrow Equity Group, founded his company to take advantage of opportunities in the current real estate market.
"Private equity can provide you yield in an otherwise yield-less environment," said Garrow. "There are really two sides to it. There is the business of investing and getting a return, and there is a component of taking those investment dollars and placing them."
Garrow said his company invests in real estate because it's local and proven.
"The path out of this economic morass is local reinvestment. We offer investors a private equity opportunity right here in Clark County that provides an eight to ten percent yield. And if you can do something locally, do it locally," he said. "We are building something I know we can sell. Just look at the performance of real estate over decades versus the equity market. The numbers speak for themselves."
Whether it's a real estate investment or a source of capital for small business, private equity has clearly found a role in today's marketplace. However, that's not to say the banking industry is going anywhere. In many areas, such as traditional commercial loans, banks remain a viable option.
"It's hard to recover from the type of hangover the banking industry went through," said Nick Williams, managing director for Wells Fargo Securities in Portland. "But the reality is all you have to do is open up the Wall Street Journal and look at the high-yield markets. Look at the record volume and the historic low rates. Wells Fargo has been very active in lending money to companies. There is definitely a lot of money being exchanged out there."
Williams said one of the main problems lenders face in today's market is actually a lack of credit-worthy buyers.
Garrow meanwhile, admitted that his business is more expensive than traditional financing, but said that his clients don't miss the banks.
"Our commitment to investors is to first preserve their principal and then chase yield," Garrow said. "The safety with us is multiple-fold. We don't overly extend ourselves and we monitor our projects every week. We never lend on something we don't want. That's where banks got in trouble."
Another area where Garrow said his company has an edge over traditional financial institutions is efficiency and built-in processes that are very straight forward.
"The banking world is a highly regulated industry and it's going to get more so," he said. "I don't want to rely on a government program or traditional financing. The difference with us is that we understand what prudence is and we simply execute prudently. It has nothing to do with a government regulation or law."
With any adverse economic climate, Garrow said there are always people that figure out a new, better mouse trap. He simply feels his business has done just that.
