How this non-bank lender could change the financial sector
By Ernest Dela Aglanu, Benzinga
Non-bank institutions seem to have eliminated traditional banks in lending.
In 1974, the banks control the credit industry, holding 62% of total loans. Almost five decades later, non-banks originated 68% of all mortgages in the United States, demonstrating that the financial sector is constantly changing.
The rise of non-bank lending has given people alternative options, putting the power in the hands of consumers
What is a non-bank?
The world Bank defines a non-bank financial institution (NBFI) as a business that does not have a full banking license and cannot accept deposits from the public.
However, NBFIs facilitate alternative financial services, such as investing, risk pooling, financial advice, brokerage, money transmission and check cashing.
Due to their huge offers and benefits, consumers have been attracted to loans from non-bank institutions.
With a non-bank loan, people sometimes bypass lengthy bureaucratic processes for simpler procedures like filling out loan applications and making payments digitally with no upfront costs and low interest rates.
Experts believe that non-bank financial institutions have been able to meet these demands and satisfy their customers by adapting to the digital age and remaining open to business growth.
Threat to traditional banks?
Players love Mill City Ventures III Ltd. (NASDAQ: MCVT), loanDepot Inc. (NYSE: LDI), and PennyMac Financial Services Inc. (NYSE: PFSI) would pose a serious competitive threat to traditional banks.
Carve out a place in the financial space
Mill City, for example, seems to be gradually carving out a place for itself in the non-banking financial space.
Founded in January 2006, the company is a principal investment company specializing in investments in debt and equity securities of public and private companies to finance their operations.
Mill City says it focuses primarily on investing and lending to private and publicly traded companies.
In 2013, Mill City elected to become a Business Development Corporation (BDC) under the Investment Companies Act of 1940, raising approximately $11 million.
The company operated as BDC until December 27, 2019, after obtaining shareholder approval to withdraw from the designation.
Over the years, Mill City notes that it has provided non-bank loans and specialty finance to businesses and individuals on a secured and unsecured basis. The main specialist financing solutions offered by the company are short-term, high-interest loans, which sometimes involve the company obtaining collateral as security for the repayment of funds by the borrower.
Loans typically have maturities ranging from 9 to 12 months and may involve collateral or, in the case of corporate loans, personal guarantees from company executives.
Main sources of income
town mill sources of income include origination fees, closing fees, exit fees, interest, extension fees and revenue participation. The company targets individuals, business owners, real estate owners, housing redevelopers and small business owners.
Nature of lending operations
Since the start of non-bank lending operations in January 2020, the average loan size and the path of blended rates have increased year-on-year. Indeed, the company has focused on providing larger loans that usually have additional features.
Key Investment Considerations
The management has experience in entrepreneurial businesses and finance.
The company is not subject to many of the regulatory limitations that govern traditional lenders or institutional competitors.
The company’s low operating costs allow for greater leverage on the income statement.
Management continues to focus on moving the returns of the blended portfolio “up and to the right” in the context of appropriate risk mitigation.
The company takes advantage of inorganic growth opportunities in the market through add-on and accretive acquisitions.
Learn more about Mill City Ventures at millcityventures3.com.
Founded in 2007, Mill City is a non-bank short-term lending and specialty finance company. Additional information can be found at www.sec.gov.
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