CapitalSource Buys SBA-Licensed Lender

As part of an ongoing expansion of its product portfolio, mid-market buyout financier CapitalSource Inc. has paid $100 million to acquire MainStreet Lender LLC, a Small Business Administration-licensed lender.

The deal, announced April 19, includes the acquisition of a $111 million portfolio of SBA and conventional loans, as well as a non-bank SBA license. As part of the transaction, CapitalSource will gain approximately 25 additional employees, including MainStreet Lender’s origination, underwriting and servicing professionals.

“It’s something we’ve been looking for for a while,” Steven Museles, co-CEO of CapitalSource, said, referring to an SBA lending platform. “Given the Obama Administration’s emphasis on small business lending and some of the tweaks they’ve made to the SBA program, we thought it would fit nicely with CapitalSource’s lending platform.”

In February, the Obama Administration pushed for several overhauls to the SBA lending program, including an increase in size of SBA loans to $5 million from $2 million and a reduced cost of capital for banks that incrementally increase their small business lending activities.

Also making the deal attractive for CapitalSource is the fact that it was already familiar with MainStreet Lender. Not only is MainStreet Lender located just across Wisconsin Ave. from Capital Source’s Chevy Chase, Md. headquarters, it also is a borrower of CapitalSource funds, Museles said. “They essentially jibed with our stated intent to start an SBA lending business, which we have been looking to do for some time now.”

The launch of the SBA arm marks the second new product offering CapitalSource has rolled out in 2010. In February, the lender kicked off a new equipment lending business led by Laird Boulden, who joined the firm from Tygris Asset Finance. Don’t be surprised if there are additional new products offered by the firm before the year is out. “We’re always looking,” Museles said. “We have a lot of liquidity in our bank, so the more arms we have to lend that money out the better.”

In 2008, CapitalSource formed a bank subsidiary called CapitalSource Bank, which subsequently acquired the assets of a troubled California-based bank called Fremont Investment & Loan. As of the close of 2009, CapitalSource had commercial assets totaling $9.2 billion and deposits of $4.5 billion.

CapitalSource’s senior cash flow loans typically range in size from $15 million to $100 million, while hold sizes tend to range from $15 million to $25 million. Asset-based loans originated by the firm most often fall between $10 million and $100 million.