A Small Business Loan from a Hedge Fund?

BusinessWeek – In early 2008, Jim Gee hit an impasse. Over the previous five years, Gee had been expanding Trinity Communications, a small cable-TV company in Marion County, Tenn., that he founded in 2003. With startup costs of nearly $3 million, Gee had used personal funds to get the business rolling, laying fiber optic cables across two rural towns and attracting new subscribers. By 2008 he had 600 customers and 6 employees, but Gee couldn’t find additional funds to service new towns and sign new subscribers.

"Local lending was just not available," says Gee. After he exhausted possibilities at traditional lenders, his attorney recommended that he reach out to a hedge fund that had recently started providing asset-based loans to small companies. So Gee met with Genesis Merchant Partners, a fund launched by the $145 million, Connecticut-based hedge fund Sands Brothers Asset Management. Within two weeks of the meeting, Gee had secured a 15-month, $500,000 loan from Genesis, carrying an interest rate of over 14% after fees, with a 10% penalty if he were to pay it off early. Trinity has nearly tripled its subscriber base since it secured the loan, says Gee. His company is now taking out a second loan for a similar amount from Genesis to continue its growth plan. He doesn’t consider the terms particularly onerous: "I was open to go as high as 15%."

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