Texas – A Great Place for Middle Market Businesses

Posted on: August 14th, 2019

Texas – Place for Middle Market Businesses

Scale-up middle market businesses need many resources to thrive. People, finance and low costs of doing business to name a few. Texas, with its strong workforce, digitally savvy cities and low costs of doing businesses, consistently ranks as one of the best places for businesses to locate.

CNBC published an article about the top fifteen cities to start a business in the United States. Of the fifteen cities listed, four of them were in Texas. WalletHub did its own survey to find the best states to start a business. Which state took the top spot? Texas. And Business Insider used similar research from a separate firm to find which state was the best to start a business in. Texas came in as a top five state – number four, behind just Wyoming, Alaska, and Nevada.

The pattern is pretty clear: across several different studies, using different metrics, it would appear that Texas is a great environment for business to grow and be successful. But why?

We’ll start from the top, and the most obvious – its geography. Texas is huge, with several densely populated urban centers. With that, comes a diverse and thriving economy – frequently ranked within the top five best economies in the country.

From a government standpoint, Texas (more so than some of its competition for best economy) tends to favor businesses. Low taxes and a forgiving regulatory structure makes it relatively easy to operate a small business and thrive.

Business taxes, too, are extremely lenient, with some businesses qualifying for taxes that are low or even completely negligible. There is no corporate tax; in its place is a franchise tax, which works quite differently and provide businesses of all sizes plenty of wiggle-room and leniency. For individuals, there is no property tax or a personal income tax. Without a personal income tax, Texas allows consumers more discretionary income to spend on businesses. And no property taxes mean that the overall cost of living in Texas is among the most manageable in the country. If you have a business and are looking to scale up, Texas welcomes you. State business regulations have a light touch and are relatively easy to navigate.

Compared to a state like New York, with a complicated regulatory structure, Texas makes traversing regulations nearly fool-proof. Plus, the urban centers in Texas, like Dallas, Austin and Houston, have reported growth in population size steadily since 2010. More people and more families mean an increase in potential employees, and an increase in demand for goods and services. With a population continually growing, it offers business more potential customers and clients each year without needing to do much to reach them.

In the acquisition financing arena, capital availability is destiny as companies require reliable access to capital to grow over the long term. Unforeseen capital needs usually arise when acquirers least expect it. This can cause some concern for the acquisition financing provider, especially when covenants tighten up and that working capital availability is utilized faster than expected.

Mezzanine debt borrowing is usually a straightforward activity that many companies use for funding of transitional growth. Mezzanine debt lenders are highly transparent about their due diligence approach and their post-closing loan management making it easy for companies to engage with.

Elections have consequences and positive ones at that for the acquisition financing middle market. While much media attention is paid to the direction of the yield curve and the Fed’s likely rate cuts, scant attention is paid to the more important drivers of the acquisition financing market – business psychology and regulatory climate.