The Times They Are A-Changin: SG Credit Partners Transforms into a Situational Credit Platform

In May, SG Credit Partners announced their expansion to a situational credit platform from a niche lender; a strategic business strategy shift predicated on the evolving state of the commercial lending landscape. To learn more about this expansion in the asset-focused lending market, ABL Advisor sat with Charlie Perer, Co-Founder and Head of Originations at SG Credit Partners for an exclusive Q&A interview.

As Charlie Perer eloquently stated when we began our interview, the famous Bob Dylan song, “The Times They Are A-Changin” could easily be applied to the commercial finance world in 2021 coinciding with the end of a decade. We asked Charlie to expand on his view of the market.

ABL Advisor:What changes have you and your team observed in the market that acted as a catalyst for this strategic market expansion for SG Credit Partners?

Photo of Charlie Perer - Co-Founder, Head of Originations - SG Credit Partners

Charlie Perer: The changes that took place over the past decade were long in the making prior to the COVID-19 pandemic, which added its own final twist. To respond to these conditions, we recently announced our expansion from a niche lender to a comprehensive situational credit platform. In practice, we have been providing these new products for several years with much success, and we are now ready to market these capabilities to the ABL community. Since inception, we have been planning to provide more solutions to the ABL community, but the market changed so drastically in 2020 that it made clear the need for us to accelerate the expansion to a broad platform. From an industry perspective, 2020 was the culmination of a decade-long evolution; consolidation and market efficiency of the traditional ABL business model has created some spectacular voids in the market. The market changes and voids created are correlated and two-fold: first, new and existing large non-bank ABLs and term lenders moved upmarket, and second, small-ticket ABL consolidation to drive scale and efficiency created an opportunity for new entrants with a unique point of difference. This confluence of changes across the industry has created numerous market opportunities for creative lenders.  

ABL Advisor: What is SG Credit’s goal in creating this platform – what is missing in the market from your perspective?

Perer: There has never been a greater need for new, non-traditional platforms in the market more than right now. SG Credit has evolved to provide a platform of products and structures that fill all the voids created by mainstream ABLs defined as traditional working capital lenders with typical accounts receivable to inventory collateral lending capabilities. The goal of SG’s new platform is to be able to offer a proverbial menu of options to every bank and ABL so we can better partner with them. The platform includes credit solutions for structured cash flow outside of asset-based formulas, multiple forms of asset-backed collateral (including and beyond traditional working capital assets), high net worth assets and recurring revenue/technology. This platform of products combined with flexible security positions is meant to complement any bank’s lending divisions including C&I, ABL, Private Wealth and Technology. The white space we and others should target is the creation of an ecosystem that serves as a complete non-bank match to supplement an ABL and provides complete solutions to traditional non-bank ABLs. In essence, simplify the lives of borrowers and lenders alike by providing a two-lender solution instead of three or four.

ABL Advisor: Please tell us about the market SG Credit is targeting and the products you will now be offering ABLs.

Perer: Our whitespace is providing customized solutions to the primarily family-owned/non-sponsored borrowers that have situational credit needs up to $10 million. We can now provide a product for each unique situation – as opposed to most lenders trying to fit a one-product solution for all situations. The solutions are always bespoke, often in connection with another lender, but in many cases on a stand-alone basis. The structures we offer span senior, split-lien, second lien and distressed and cover a broad range including cash flow, many types of collateral, high net worth assets and recurring revenue/technology. The goal from the start has always been to be every ABL’s first call, and that goal remains, except the platform now allows for many more solutions as we extend our capabilities in asset-focused finance, including real estate and high net worth lending.  The flexibility in this new platform now includes extending credit to high-net-worth entrepreneurs whose businesses or outside assets may not qualify for traditional credit. One of our points of difference is that we can take a holistic view of an entrepreneur’s business and personal assets and treat them as one. We also have a strong capital base that is not entirely dependent on leverage, enabling us to provide a bespoke solution to both our referring lender partners and the ultimate client. 2020 re-set the playing field on many levels in the sense that most firms experienced changes whether desired or not.  

ABL Advisor: Can you please speak to the large and small-ticket ABL market changes? Why have these changes created a larger market opportunity?

Perer: The market moved the most for both the largest and smallest players in terms of facility sizes, but less so for the middle-market participants, defined as those focusing on facility sizes from $10 to $30 million. This trend is going to continue for the foreseeable future and merits discussion. Big-ticket ABL defined as facility sizes of $30 million and above have become the new hotspot for competition. Several new platforms have been announced over the past year or so of which some are traditional ABL focused, and some are more term focused.  Many firms have been forced to move up market as a product of their own successes, be it in ABL or another lending vertical, and now find it challenging to make smaller loans – the economics and time management of a sub $30 million facility are simply less compelling for many lenders. What it does speak to is the true size of this market opportunity and why the need for scale enticed many to shy away from smaller deals. It should be noted that competing at this level entails an “any given Sunday” approach as any firm can win or lose on any given day – the competition is fierce.

Now juxtapose big-ticket with small-ticket and it is a tale of two cities. While non-bank big-ticket experienced many new entrants, non-bank small-ticket experienced consolidation by BDCs and independents to create national firms with scale, pricing power and standardization. In lock step, this moved the small-ticket market by driving pricing down, creating even more incentive for firms to continue to scale to absorb the lower market pricing, a virtuous cycle and land grab for market share. The small-ticket ABLs are typically focused on providing traditional working capital lines rather than taking less liquid asset risk. The market to partner with these firms consists of single-product providers, of which SG used to be one, rather than a platform that provides either a la carte products or a comprehensive solution. The goal in creating a platform is to be able to finance multiple forms of collateral plus provide a stretch piece beyond what the assets could traditionally support. While the small-ticket ABL market has consolidated, the ancillary ‘one-product’ market has not. There are too many firms focused on single products. This is why SG Credit has been able to successfully expand to a credit platform – we solve the voids created by this small-ticket consolidation and standardization.

ABL Advisor: Looking back and now looking ahead, what do you anticipate seeing over the next ten years in the ABL market?

Perer: The past ten years were all about the traditional ABL becoming mainstream and consolidating. The next ten years should be about innovation to better support traditional products. As I stated at the beginning of this interview, Bob Dylan famously said it best, The Times They are A-Changin.