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In a positive sign for the slowly recovering IPO market, commercial lender



soared on its first day of trading Thursday.

The lender to small- and medium-sized firms is the latest company in the financial services sector to go public, following offerings from insurer

Axis Capital Holdings

(AXS) - Get Axis Capital Holdings Limited Report

and REITs

Maguire Properties


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American Financial Realty Trust

( AFR).

CapitalSource's timing may be auspicious. Commercial and industrial loans had growth in July for the first month in almost a year and a half, according to

Federal Reserve

data. And as the economy recovers, loan demand is expected to come from smaller borrowers.

"The indications are that they will be the first to recognize emerging opportunities," said John Lonski, an economist at Moody's. "They may take the lead in increasing capital spending." Small- to medium-sized firms also get favorable tax treatment for capital spending, according to President Bush's plans.

For its part, CapitalSource believes that such borrowers are underserved by traditional lenders. "They are viewed as either nonstrategic by or unable to meet the credit policies of banks and other large commercial lending institutions," the company said in its prospectus.

CapitalSource was lately up $3.25, or 22.4%, at $17.75, putting it on track for an above-average debut. This year's IPOs, on average, have closed up 14.12% on their first days, according to Dealogic.

The lender sold 21.3 million shares at $14.50 a share, toward the high end of its $13 to $15 proposed range, to raise $308.9 million. Credit Suisse First Boston was the lead underwriter on the deal. In its first quarter, CapitalSource had earnings of $18 million, or 18 cents a share.