As More Consumers And Investors Seek Alternative Financing, This Company's Specialty Financing Could Provide Answers

As More Consumers And Investors Seek Alternative Financing, This Company's Specialty Financing Could Provide Answers

A wind of change is blowing through the financial industry as more people drift toward nonbank institutions for their borrowing needs.

In 1974, banks controlled the lending industry, holding 62% of the total loans. Almost five decades later, nonbanks issued 68% of all U.S. mortgages. 

A report by the Bank for International Settlements (BIS) indicated that syndicated lending to nonfinancial corporations increased substantially, from less than $300 billion in 1990 to around $4.75 trillion in 2019. Nonbank lending increased from $20 billion to $410 billion per year over the same period.

Specialty Financing

These nonbanks’ ability to meet the need for alternative or specialty financing may be what’s driving their increase in lending.

Specialty finance firms make it easier for consumers and small to mid-size businesses to get loans they may find difficult to obtain from traditional banks.

They have easily won the hearts of some customers who were yearning to bypass long bureaucratic processes in favor of more straightforward procedures like completing loan applications and payments digitally with no initial fees and low-interest rates.

Thanks to this financing option, people who do not qualify for a traditional bank loan because of bad credit history are now turning to the alternative lending market for their capital needs.

In this context, companies like Oxford Square Capital Corp. OXSQ, Mill City Ventures III Ltd. MCVT, Manhattan Bridge Capital Inc. LOAN, and U.S. Global Investors GROW have flourished over recent years.

Meeting Demand

As borrowers continue seeking alternative financing sources, Mill City Ventures III Ltd, a short-term nonbank lending and specialty finance company could be answering this demand with its specialty financing solutions

Founded in January 2006, Mill City specialized in providing bespoke short-term lending solutions to public and private companies facing short-term liquidity issues. 

Mill City ordinarily provides nonbank lending and specialty finance to companies and individuals with both collateral and a short-term source of liquidity anticipated to be available by the time the loan matures. The principal specialty finance solutions the company provides are high-interest, short-term lending arrangements.

The loans the company provides typically have maturities of nine months or less and involve a pledge of collateral or, in the case of loans made to companies, personal guarantees by the borrower’s principals.

Since commencing short-term nonbank lending operations in January 2020, both the average loan size and weighted interest rate have increased year over year.

Financials

The company’s product offerings could be positively affecting growth, as shown in Mill City’s recent financial results for the three- and six-month periods that ended June 30, which could be good news for investors.

Q2 2022 Highlights

  • Investment income from lending operations increased 83% to $1.24 million in the three months ended June 30, up from $675,549 in the prior year. 

For the six-month period, investment income from lending operations was $2.24 million, compared to $1.2 million at the same time a year ago, an 83% increase.

  • Pretax earnings from lending operations increased in the second quarter to $734,250 from $425,393 in the prior year, a 73% increase. 
  • In the six-month period, pretax earnings from lending operations reached $1.2 million compared to $438,377 in the prior year period, a 171% increase.
  • Shareholder equity increased to $14.4 million on June 30, 2022, from $13.4 million on Dec. 31, 2021.
  • As of June 30, 2022, the company had $629,572 in cash, compared with $1,936,148 as of Dec. 31, 2021.

Featured photo by Atstock Productions on  Shutterstock

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