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

Tara Reardon
Are you prepared for winter’s weather?

New Hampshire's winter can be fierce. Homeowners should take precautions to protect their house and family.

more »
Mathew Solso
#GivingTuesday donations: Efficient and effective

Efficiency is one of the things I like best about the New Hampshire Community Loan Fund.

more »
Kelli Cicirelli
Co-ops are thriving in New Hampshire

Like our country, the bedrock of the thriving co-op democracies we call resident-owned communities is that they are of the people, by the people, and for the people.  

more »
Julie Eades
Co-ops using funds to strengthen each other

Some of New Hampshire's food cooperatives are using their endowments to help create cooperatively owned manufactured-home communities.

more »
Angela Romeo
ROCs are learning to love technology

Embracing video conferencing has enabled the ROC-NH team to give its resident-owned communities more-effective and more-timely assistance.

more »

Success stories