It's no surprise that creative financing is on the upswing. More people are starting businesses than before the economy tanked--but traditional business lending is still faltering.
"The majority of small businesses don't need to borrow $1 million. They need to borrow $25,000 to $50,000," says Charles Green, executive director of the Small Business Finance Institute, a nonprofit that educates entrepreneurs about financing. Little wonder that alternative financing methods--crowdfunding, peer-to-peer lending sites, online pawn shops, you name it--have become so popular.
Take microlending. In 2011 Accion East, a leading U.S. provider of $500 to $50,000 microloans, granted 19 percent more loans and lent $2.2 million more than the previous year. According to Accion East CEO Paul Quintero, it's the same story at the four sister organizations in Accion's national network: more entrepreneurs applying for loans and more microloans disbursed.
Also gaining in popularity is revenue-based financing (RBF), which is repaid based on the lendee's monthly sales. Since forming in 2010, Seattle-based RBF lender Lighter Capital has gone from making three investments per year totaling $250,000 to 13 totaling $1.5 million, says CEO BJ Lackland. HireAHelper.com, a booking site for moving and day labor, got a $200,000 business-expansion loan from Lighter Capital a year ago. "It ended up being a pretty important catalyst for our growth," says Mike Glanz, the site's co-founder.
Entrepreneurs are also flocking to collateral-free loans, particularly short-term ones. Consider merchant cash advances, in which restaurants, retailers and other businesses doing a high volume of card transactions receive a lump sum in exchange for a cut of future credit or debit card sales--often about 25 percent. This year these advances will total $1 billion, up from $800 million in 2011, says David Goldin, president of the North American Merchant Advance Association.
All this is good news for entrepreneurs seeking capital. "Alternative lending is becoming more mainstream," says Rohit Arora, co-founder and CEO of Biz2Credit, an online credit marketplace. "And as it becomes more mainstream, the cost of those products is going down."
David Rockefeller, the banker and philanthropist with the fabled family name who controlled Chase Manhattan bank for more than a decade and wielded vast influence around the world for even longer as he spread the gospel of American capitalism, died on Monday morning at his home in Pocantico Hills, N.Y. He was 101.
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All leaders want to know what trends will shape the future of their industries before they happen. To spot them early, you can't mingle with the usual suspects at industry events. You need to interact with the peripheries of your industry. Here are two ways to do that:
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