Sign Up For News!

Follow Us!

Sign Up For News!

Follow Us!
  • fc-webicon-rss
  • fc-webicon-rss
  • fc-webicon-rss
  • fc-webicon-rss
  • fc-webicon-rss
  • fc-webicon-rss

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

Resident ownership is delivering results
Julie Eades

Early data show the "excellent financial discipline" of ROCs.

more>>

How to prevent and remove ice dams
Chris Clasby

Practical tips that stop ice dams cold.

more>>

Co-ops improving communities statewide
Gary Faucher

Resident ownership paves way to lots of good community projects.

more>>

What to do with those old business files
Kelli Cicirelli

File, discard or shred? A guide to what co-ops should do with their business files.

more>>

Boot camp tackled toughest operations issues
Jeanee Wright

A behind-the-scenes look at preparation for ROC-NH's first Operations Boot Camp.

more>>

Success stories

Owner of manufactured home park was determined to sell it to residents

Stony Brook Estates' 2014 conversion to resident ownership kept homes affordable for its retirees.
more>>

Business education helps farmer up the learning curve

"Lean" describes more than the meat at Brookford Farm, where Luke Mahoney has embraced progressive business practices.
more>>

Philanthropist is a catalyst for others who want to create impact

"When I can inspire other people to match what I’ve given, it just makes me feel like we’ve accomplished so much more."
more>>

A Welcome Home Loan made it their turn, again

After declaring bankruptcy and losing their previous house to foreclosure, Wanita and Kevin Ordway wondered if they'd ever again own a home.
more>>

There's no place like her hometown for retiree

An affordable apartment in her hometown means Rita Landry can live independently and comfortably.
more>>