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Mid-sized Companies Have Greater Access to Capital and Ability to Grow

U.S. mid-sized firms are increasingly able to access capital today, and are generally more optimistic now than at any other time in the last three years, according to results of the latest Dun & Bradstreet and Pepperdine Private Capital Access Index, released in July.

Overall, access to capital is up 8.6% since the study began in the second quarter of 2012. Moreover, mid-sized businesses also seem increasingly more confident about their ability to secure funding, with a 19% drop since 2012 in the number of mid-sized businesses that believe equity financing is “difficult to raise.”

“The fact that mid-sized companies are reporting greater success and optimism is a strong indication that smaller businesses have joined their larger peers in the economic recovery,” D&B vice chairman Jeff Stibel said in a press release announcing the results.

More than three-fourths (76.3%) of mid-sized businesses successfully qualified for a bank loan in the second quarter, compared to 31.5% of small businesses. Mid-sized businesses also are seeing an increase in equity options as an alternative to bank lending. From 2012, there was a 42% increase in businesses seeking private equity financing; a 40% increase in businesses seeking a hedge fund investment; and a 26% increase in businesses seeking angel funding.

“More than three-fourths (76.3%) of mid-sized businesses successfully qualified for a bank loan in the second quarter, compared to 31.5% of small businesses.”

Likewise, Rich Anderson, a managing director at Moss Adams Capital LLC, wrote on the company’s blog in February that capital markets are the strongest the firm has seen in at least seven years.

“Funds are flush with capital, have a desire to back successful entrepreneurs, and are willing to make minority position investments,” Anderson wrote. “As the United States continues to recover from its economic slump, businesses that are doing well are seeing very high valuations, largely due to the competition among capital sources to own a piece of their success.”

He recommends approaching many different capital sources to create more competition, which could decrease the overall cost of capital and improve the terms of the financing a mid-sized firm may be able to get.

A mid-sized firm with slow, steady growth of about 3% to 5% per year can likely negotiate good terms on its own with a senior lender, he says. However, companies growing much more rapidly and unpredictably are better off working with an investment bank to approach capital sources, compare deals and negotiate terms.

“In the early stages of a company’s life cycle, making the jump from a small to a mid-size company often requires a large infusion of capital,” Anderson wrote. “You’ll need to invest in infrastructure, personnel, and inventory, and you’ll need to finance the company’s growing accounts receivable base. Additionally, you may need or wish to buy out certain shareholders.”

To be most effective, mid-sized firms should assemble a team of investment banking, accounting, and legal advisors who can guide the business in the right direction.

“With their help, you’ll gain a clear picture of your options for financing your company’s growth and how to best structure a transaction,” Anderson wrote.

About Katie Kuehner-Hebert

Katie Kuehner-Hebert
Katie Kuehner-Hebert has more than two decades of experience writing about corporate, financial and industry-specific issues. She is based in Running Springs, Calif.