Step forward the example of UK-based Trafalgar Capital Advisors, which manages the TCA Credit Master Fund; the vehicle has clocked up a 2010 year-to-date performance – after fees – of 18.4 per cent and so far, 3.7 per cent this year. The firm has offices in London and South Florida.

The fund, which is registered in the Cayman Islands, is an open-ended vehicle with around $100 million of assets; it focuses on asset-backed lending for firms which, due to cash-flow mismatches – such as uneven revenue payments – require specialist lending. Target investors in the fund include family offices and small pension funds.

As an example of a recent transaction, Trafalgar has closed a $1 million secured revolving credit facility for Crystal Clear Pools, a leading US-based intrastate service provider of pool cleaning and maintenance services with 25 years experience.

“For companies that have previously got some bank financing, or done some equity fund-raising, their options have been narrowed,” said Bob Press, chief investment officer of the fund and managing partner at TCA.

The fund has a master-feeder structure which means, among other things, that it can be accessed by US investors (a relatively unusual feature, Press says). The minimum investment size for clients is $100,000, or the equivalent amount in euros and sterling. The custodian for the fund is Deutsche Bank.

“It does short to medium duration small-scale asset-backed financing, such as for small listed companies,” Press said, adding that TCA also provides the kind of advisory services for companies that are often out of reach for SMEs.

Bank finance for such firms is difficult to obtain in the current environment, and they were never very involved even during easier times, he said. The Trafalgar business model has operated for several years, during the boom times and leaner times, he said.

Dearth of funding

As noted before by this publication, the dearth of banking finance since the credit crunch has prompted alternative sources of financing, often via fund vehicles. In a way, this represents a reinvention of old-fashioned merchant banking. Other sources of non-bank finance to have developed recently include so-called “angel investors”.

One of the problems that many TCA clients face is the cash-flow “mismatch”: a firm may be paid in short, concentrated periods but be required to finance operations over a longer period.

Press gave the example of firms providing technology for schools, which could be very seasonal in terms of contracts and revenues. Another example was for firms arranging sporting events – revenues could be concentrated into a few weeks but the running costs of a project could last for a year or more before or after the actual event.

Even if banks wanted to do such financing work, they are constrained by their own pricing policies in how much they can charge, and banks are also facing mounting regulatory capital costs, he said.

The fund earns revenues depending on the specific nature of a deal, such as through capital fees, or payments based on monthly receivables or other flows. Financings are typically in the form of a one-year renewable deal, akin to a revolving debt facility.