You’ve heard of the middle-child syndrome: The family focus often goes to the older overachiever or the vulnerable youngest sibling, leaving the middle child fighting for attention. The situation translates into business: Fortune 500 companies are the darlings of Wall Street and the bread and butter for traditional lenders, while startups charm venture capitalists and angel investors—leaving midsize companies screaming for financial attention.

Middle-market companies are defined as businesses with annual revenues of $10 million to $500 million. As of January 2006, there were 113,056 such businesses in the United States, with more than three-fifths occupying the smaller end of the middle market. These figures indicate that mid-caps are a significant part of the business landscape. Yet, when it comes to financing, they often get squeezed out of the picture.

Owners of mid-market companies can lack the resources and time needed to identify and initiate strategies to reduce overhead and improve finances so that they can grow their businesses. There is, however, some good news on the horizon. A handful of alternative investment firms have taken notice of the plight of middle-child businesses and are doing something about it. This new breed of financier is capitalizing on opening the private equity market to individuals who don’t meet the typical accredited investor mandate ($1 million in assets and an annual income of $200,000). As a result, alternative investment firms are gaining strength and filling the gap left by changes in traditional lending.

The Changing Face of Finance
Until the late 1980s and early ’90s, the finance industry held to traditional ways of doing business, using banks as the only means for a business loan. Bound by less federal oversight back then, banks were smaller and more regionally focused, with the ability to establish and maintain long-term personal relationships with business owners.

But amid the turmoil caused by the savings and loan crisis, the banking industry changed. With new federal regulations and state legislation came the emergence of megabanks. Larger nonbank finance companies also merged, intensifying the competitive nature within the finance industry.

These banks and financiers carved out niches in the new order of business finance. Big lenders now focus on companies with larger revenues, while the community banks that still exist tend to lend to businesses with smaller balance sheets. What’s missing? Help for the businesses in the middle—and their investors.

How Mid-Market Companies—and Investors—Benefit
Over the past 100 years, the growth of the economy and the associated role of investment strength have endured the bank consolidation cycle, commercial finance company cycle and various scandals and corporate crises. Today, with an unprecedented amount of cash available, the cycle shows an upswing in the popularity of alternative investment firms, which is good news for mid-market companies because these institutions are focused on meeting their needs.

In the private equity arena, alternative investment managers have liquidity, which alone is a strong benefit for mid-caps. Working with an alternative investment firm inherently allows these companies a level of greater flexibility because the regulations and limits that hamstring traditional lenders do not shackle these firms. In addition, the managers working in the alternative investment industry are typically some of the best and brightest, who left regulated institutions to pursue their passions for innovative commercial finance.