Sign Up For News!

Follow Us!

Blogs

How to get more capital to small businesses?

New York Times blogger and loan broker Ami Kassar recently proposed a different structure for loans as a way to open up small business credit.

Instead of set monthly payments, loan repayment would be based on a percentage of revenues, similar to daily merchant cash advance repayments.

Machine worker at Johnson Precision"In the new model I am proposing, because the lender is assured of a piece of the entrepreneur's future earnings regardless of whether the current business succeeds, the lender should be willing to be more flexible with terms and rates," Ami writes.

I certainly agree with Ami that we need more "out of the box" lending and investing approaches in order to get capital to companies on whose success our economy depends. His proposed solution is similar to what Vested for Growth has done in New Hampshire since 2002.

However, I do not see this type of lending as being the role of bankers, whose "least-cost debt" business model only works when they are repaid 98-99%. Alternative lenders can take higher risks with subordinate debt as long as the borrower has steady cash flow and a strong management team.

Then there are companies that are primed for growth, but considered too risky for bank-type loans. That's where royalty financing comes in. Similar to what Ami describes, the investor's return is based on the company's performance and cash flow.

Royalty financing works well for second-stage companies that are introducing a new product or experiencing a merger or acquisition. It does not work well for startups, whose revenue is still speculative.

Evolving businesses often travel a wide spectrum of risk. Entrepreneurs are better off when all of the choices along the risk spectrum are available and when they understand the tradeoffs of each.

John Hamilton is the Community Loan Fund's Vice President of Economic Opportunity and Vested for Growth's Managing Director.

Opportunity. For all.

Blog posts

Mathew Solso
Security: No small gift in an uncertain world

The education, training, and technical assistance we provide sets our borrowers up to make better financial decisions for the rest of their lives.

more »
Steve Varnum
Top 10 reasons to make a year-end gift to the NH Community Loan Fund

#1: Opportunity. For all. It's what we believe in. It's what we do.

more »
Steve Varnum
Our top five blogs of 2016

Our top five blog posts of 2016 illustrate the need for the work we do.

more »
Julie Eades
Education or permanent lending? Which would you choose?

Donors here can choose whether to direct their gifts to borrower education and training, or to our permanent fund.

more »
Julie Eades
The numbers behind 2016's success stories

NH Community Loan Fund President Juliana Eades looks back on a year filled with highlights.

more »

Success stories

Loan consolidation spells well-deserved raises for teachers

Customized financing helped Tilton early-education center save money and give teachers raises.
more »

A construction loan puts Asian market back in business

A ethnic market owned by a refugee family was itself homeless for three years. A timely loan helped it reopen, bigger and better than ever.
more »

Investments deepen Endowment's impact

“Investing in the Community Loan Fund is really awesome because it’s tested, predictable, it’s giving us return, and it passes the test of financial...
more »

Matched savings make a home, and community connection, possible

An eight-to-one Individual Development Account savings match enabled a young couple to put down roots in the city they love.
more »

Once adrift, family settles into a home of its own

After 13 moves in 16 years, "I felt like we were drifting," says Donna Legare. But with no credit, how could they ever buy a home?
more »