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Super G Capital, LLC is filling a credit void in the lower-middle market with its subordinated cash flow-based term loans from $500,000 – $5 million. Charlie Perer, head of originations, explains more on this niche business and how his origination strategy is focused on partnering with senior lenders.

Founded in 2008 by entrepreneur Darrin Ginsberg (the G stems from Ginsberg), Super G Capital provides fully amortizing senior and second lien cash flow loans to both owner-operator and sponsor-backed companies throughout the country. Super G is a direct lender, but also considers itself a service provider to senior lenders, offering three services: on-boarding, off-boarding, and retaining.

“We’ll finance the airball to on-board the overadvance to retain clients so they don’t leave and exit financing when the senior lender wants them gone,” explained Perer. “We solve for a dollar value as our sweet spot subordinated check size is typically between $1 million and $3 million. This dollar size is usually too big for an overadvance and the owner to contribute equity and too small for traditional SBIC/mezzanine fund. Senior lenders will always say they’ll do a cash-flow term loan and an ABL structure, but they typically don’t have the risk appetite. The good thing about our capital is that it is broad use as we are fine to finance growth, acquisitions, tax lien clean-ups, and seasonality, among other uses.

“We’re trying to become the leader in sub-$5 million subordinated cash flow lending. We have the capabilities to make one to three-year term loans subordinated to asset-based lenders and banks. Most of these firms do not like to provide term loans because it’s not tied to an asset. Whenever they say ‘no’ to the client, our job is to compliment a senior lender. Most of our deals come from senior lenders and we have to educate the senior lender on our model, which is to provide a range of services that enable them to stay within their credit box and let us finance the incremental risk.”

At first glance, Perer explains that Super G Capital’s model may not make sense looking at it as a stand-alone product – a short-to-medium term, high-interest rate loan. However, for purposes of illustration when combining Super G’s one million loan with a senior lender’s four million for example, the bigger picture becomes clearer.

“The blended cost is nominally higher, given we are typically less than 20% of the debt capital structure and amortize out,” Perer added. “The high rate is necessary, given the relatively short-term and blended rate comes out to market-rate uni-tranche pricing. We’re trying to scale our second-lien debt product in the lower-middle market where there is a dearth of subordinated capital providers that will touch sub-$5 million EBITDA companies. The product is branded second lien as it is a different product than traditional mezzanine capital. There’s real nuances to it and we fill a void for these $1-to-$3 million checks subordinated to senior lenders. Most of our clients are not backed by private equity and generate EBITDA below $5 million,” Perer continued. “So we are playing in a riskier space that banks can’t play in and is below the threshold for most traditional mezzanine firms. We provide real capital and have very low bad debt. It’s traditional underwriting based on cash flow and conducted by experienced investment professionals. The structured term loan provides a flexible amortization as very few of our clients are able to handle straight line amortization, but the amortization is key to enabling us to manage risk. This ability alone is a unique selling point for us.”

Super G oftentimes faces no-to-limited competition when it comes to its average second lien loan size of $2 million loan size due to a confluence of factors, including size of loan, flexible structure and professional deal team. Large funds aren’t providing $2 million in loans due to large fund sizes and need to have capital outstanding for a longer hold period, while $2 million is often too big for a bank to do an overadvance.

“We have a unique capital base that other large funds don’t have that lets us write a lot of small checks and amend loans when needed so we can work with banks to help their clients,” Perer explained. “I pitch banks, asset-based lenders and investment bankers, and, once they understand the broad uses, they then resell our money because we have to be able to execute quickly and flawlessly. It’s very hard to do unless you’ve done a lof of these deals,” he adds. “we’ve done over 50 deals during the past two years, and we want to grow and be the national leader by doing 50 to 100 deals a year, which we now have the team and capital to do.”

Super G’s long-term goal is to penetrate the big banks.

“We believe the big banks have the greatest need for our product, but, at the same time, are the hardest to make inroads, with given sheer size and structure.”