Trafalgar Capital Advisors (TCA) has found a way to combine the concept of a merchant bank with a hedge fund in order to exploit lending opportunities for listed small and medium-sized businesses.

Robert Press, founder and chief investment officer of Trafalgar Capital Advisors (TCA), a boutique finance and advisory company, lends money directly to small listed companies that are struggling to borrow from banks and are too small to access bond markets.

The fund, with around $100 million under management, exploits these opportunities through Cayman-domiciled TCA Global Credit Master Fund. The idea, says Press, is a simple one, filling a finance void left by the big banks.

The funding Press's fund offers ranges between $250,000 and $5 million. This is a range usually unattractive for most companies and banks but is a sector he has been able to use to generate average returns in the range of 10% to 14% a year.

The fund portfolio is comprised of senior secured debentures, receivables facilities and other collateralised debt obligations (CDOs) without any leverage or shorting.

"Lack of small business financing and credit is a big political issue," notes Press. "A lack of small business access to capital is a critical component of small business growth – or its absence for at least 10-15 years."

The idea started in 2000-01 during the last recession. "We owned an investment banking firm at the time, representing small-cap, mainly listed companies. In trying to get them financing, we had to do a number of things to help them with their business and balance sheet. We started advancing them capital from our own funds. It was all in the capital structures that were very protective to get our money back," explains Press.

From this TCA ended up two years later being offered seeding in a fund that started in 2004 "We've been on the fund side of the business ever since. It's an interesting area, not only providing funding but doing a lot of advisory finance for them as it doesn't really exist at the small-cap level".

TCA's sweet spot is small and medium-sized enterprises (SMEs) in Europe, North America and Asia. While he is worried about the possible impact of a Greek sovereign default and the ramifications for the eurozone and further afield, he is focused purely on individual companies.

"We do a lot of cash contract lending so the duration of our instruments is fairly short and our collateral is fairly liquid. So while macro events affect everything, they don't really have a short-term effect on what we are doing. It might have a long-term effect on dampening demand from SMEs as it has on GDP," he explains.

For Press, SMEs once listed are like the "orphan children of capitalism". By this he means the avenues to fundraising are few. "They struggle to grow their businesses," he concedes. Once listed they have two basic issues all companies face: one is not enough equity underpinning their business in order to grow effectively without further capital injections and the other is that many face a payment mis-match issue.

"Coming out of the global financial crisis, small businesses have been hit on two sides. People they buy from are demanding quicker payment to reduce their own exposure and credit risk and the people they sell to are demanding better payment terms to pay them. The combination of this is not very good for small business," says Press.

The fund has a particularly strong track record, returning 18.37% in 2010, 14.95% in 2009, 19.59% in 2008 and 23.79% in 2007. This year the fund has continued to perform well with a year-to-date performance of 9.44% at July 31.

A full fund profile of TCA Global Credit Master Fund will be published in the October edition of Hedge Funds Review, available online from October 4.