The topic of capital shines brightly on two opposite ends of the business world.
Startups attract early-stage venture funding, including grants, angel investing and microloans. Large corporations with a strong financial history and assets to back up risks are able to secure hundreds of millions of dollars from institutional banks.
However, between the two is an often-underserved world referred to by experts as a crucial segment of the country’s economy that may be overlooked when it comes to capital lending.
Mid-market companies, defined by market experts as those that operate with revenues between $10 million and $1 billion, are less noticeably driving economic performance and job growth. They do business across the majority of industries – from manufacturing and logistics to construction, technology and business services.
Why They Matter
These companies are the “Market that Moves America,” says The National Center for The Middle Market (NCMM). According to the U.S. Chamber of Commerce, middle-market companies account for one-third of jobs and 40% of the gross domestic product (GDP) in the country. In fact, NCMM reported that if the middle market were a company, its GDP would be the fourth-largest economy in the world.
Several factors contribute to the power behind the middle market. They have an advantage over startups and larger-operating companies in times of economic downturns and tend to reinvest in local economies, according to the World Economic Forum.
Despite the numbers, mid-market companies struggle when it comes to capital needs for growth or expansion. They are beyond startup status with established client bases and already scaling operations. Their capital needs for growth and expansion range from $1 million to $5 million. But, they have landed in a spot where they are too big for introductory funding and too small for the preferential treatment of larger banks.
Moving Forward
Because of the lending gap, mid-markets tend to rely on funding structures that are more piecemeal, have limited flexibility and, in many cases, have higher interest rates.
To bridge the gap, several programs in Indiana are in place to help mid-market companies gain access to the capital they need and keep the Hoosier economy growing. One of those programs is the Capital Access Program (CAP) managed by the Indiana Economic Development Corporation. The program provides eligible businesses up to $5 million through a credit enhancement program that eases the risk for lenders and provides more opportunities for businesses.
In addition, several private investment firms across Indiana are developing additional capital programs to meet the specific needs of the mid-market segment.
The moves to recognize the potential behind middle-man companies is a positive step forward in helping to bring their revenues more in line with startups and large corporations. That equality could result in unlocking $1.3 trillion in annual revenue growth across the country, according to researchers.
In the meantime, companies that fall in the middle can continue to explore other opportunities, such as loans from the Small Business Administration and developing programs that are starting to recognize the power in the middle.
