Small Business Finance - What Works, What Doesn't?
May 5 and 6 will see an interesting conference on small business finance here in Washington DC, covering topics from lending techniques, innovations, the impact of market structure, government interventions and alternatives to bank finance.
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Any information about what worked well?. It looks like these days there is more interest among banks for this target. www.bancoii.com
Posted by: Salvador Trinxet | Jun 20, 2008 7:52:36 PM
First, since most funding is now through either development banks or commercial banks or MFI (Micro Finance Institutions), this has added a layer of cost to each and every transaction that is hard to offset when the potential profit from an enterprise is only 10-12%.
Credit requirements are excessive in that for every loan 1.5 times the amount is required in underlying assets to provide a favorable "debt coverage" ratio.
We suggest that a different approach be considered. Lend to entities within a class of business. Within each class of business there will be winners and losers. The fit will survive and the lazy will fail. In the event of a default, resell the equipment that was purchased by the less strong to the stronger and continue to build up that class of business within that sector of the economy. Therefore we need to look at the bank-end of the transaction as to how we can minimize the loss and enhance the industry and the winners within that industry that clearly demonstrated by their ability to survice.
Development banks need to take more risk, but risk that is quantifiable. Too much emphasis is placed on the surviveability of the development bank and its ability to go directly to the markets to raise capital based on ratings. They are not doing the job that was identified in their original mandate, or the mandate needs to be modified.
Posted by: BILL CLARK | Jun 26, 2008 12:13:54 PM
Another fascinating article, thank you. I will be using it in my coursework and also referencing http://www.thefinanceowl.com/ analysis. Please keep up the great work.
Maggie
Posted by: maggie | Oct 29, 2008 7:05:53 PM