With any number of tech startups looking to secure financing, lenders have to determine which businesses are most likely to be able to repay their loans.

According to Goldman Sachs’ Taylor Mefford, the payment facilitator space is a really good place to start.

Mefford spoke at the PF WORLD 2018 event in September about what lenders are looking for from PFs. He is a managing director in Goldman Sachs Specialty Lending Group, where he focuses on middle market businesses in payments, software and transaction processing.

The business model behind this type of company makes the market an attractive place to lend, he said.

“The number one core tenet – or investment thesis, as we like to call it – within these businesses is recurring revenue,” he said. “That, for us from a lending perspective, is the collateral or the security that a lender like us gets in these businesses and provides the stability that gets us comfortable with lending money to them.”

To companies looking to raise money, Mefford said that lenders are different from equity investors in that they will have certain requirements about achieving growth.

Mefford also discussed the merits of lending to companies that are backed by venture capital vs. those that are still founder-funded. Neither model is better than the other, he said, but each has its own unique characteristics.

VC-backed companies likely have more of the structure and the relationships they need already in place, he said, because of the process they’ve been through with their investors. Entrepreneurs, while they may require a bit more help from the lender, also have the potential to provide more flexibility.

“Probably the easier ones have VC or private equity dollars in them,” he said, because they’ve already undertaken some of the needed financial reporting and may have more scale and management depth. They also are likely to know how they would like they would like to structure their business for future growth.

With entrepreneurs, on the other hand, “you’ve got to roll up your sleeves a lot more. There’s a lot more you need to help with to get them up to be ready to take institutional capital,” Mefford said.

Because of that opportunity to take a more active role, the bootstrapped model also allows more flexibility for the lender to influence the business and achieve shareholder return, he said.

Watch for additional insights from around the payment facilitator ecosystem as we continue to share video from PF WORLD 2018 in future weeks.