Looking Beyond Banks for Financing

CEO Tech Guide to Creative Financing Looking Beyond Banks for Financing By Verne Kopytoff February 05, 2013 Entrepreneurs starting businesses drains their savings, mortgage their homes, and hit up friends for cash. After landing some customers, they bring on investors to fund an expansion. It’s a path taken by countless startups. For many, it’s a road to frustration. Access to financing is among the toughest challenges entrepreneurs face. Not everyone has deep pockets or connections with investors. Banks—the most obvious source of money—were already reluctant to make loans to untested, unprofitable businesses with limited collateral and then pulled back on lending during the recent recession. Small business loans fell by half during the depths of the crisis, according to the Thomson Reuters/PayNet Small Business Lending index. Lending has since recovered somewhat, but it is still down nearly 25 percent from its peak at the end of 2006. However, nascent companies—and even some mature ones—have a growing number of alternatives they can tap for capital. Crowdfunding, peer-to-peer lending, microlending, and further options have gained traction in the past several years. “It’s really encouraging,” says Todd McCracken, chief executive of the National Small Business Association, an industry trade group. “We’re starting to see a real renaissance in small business financing.” Few methods of obtaining startup capital have received more attention lately than crowdfunding, by which companies ask the public to make donations, investments, or loans. The best-known contribution-based crowdfunding sites are Kickstarter and Indiegogo. Jimmy Buchheim, founder of StickNFind Technologies, in Davie, Fla., listed his first campaign on Indiegogo recently as a last resort. He had pitched two large companies on developing his idea—Bluetooth enabled stickers that help people track their lost keys, shoes, or cat using a smartphone—but got nowhere. So he decided to forge ahead and build the product himself. Lacking connections with investors and averse to pitching to banks, he took his idea directly to the public. Buchheim’s idea was a hit, raising more than $900,000 from more than 16,000 people. The show of support encouraged him to increase his planned production to 200,000 units, far more than he would have done without the pre-orders he received as part of his Indiegogo campaign. He’s using the money he raised to hire engineers and cover the cost of manufacturing. “As an inventor, it’s been truly amazing,” Buchheim says. Not every business is a good fit for Indiegogo or its rivals, Buchheim says. Companies without experience delivering a project on time risk damaging their reputations, while those who want to keep their plans under wraps may have their ideas stolen, he cautions. Slava Rubin, chief executive of San Francisco-based Indiegogo, says that his website is a useful tool for any company looking to gauge consumer interest in a product and to collect customer e-mails. Making the most of it, however, requires some forethought, he says. Listings for tangible products, particularly those that are further along in development, usually attract more contributions. Campaigns with a video do better than those without one, he adds. Another version of crowdfunding involves companies soliciting the public for investment rather than for contributions. The Jobs Act, signed into law last year by President Obama, paved the way by loosening restrictions on who can invest in private companies. Federal regulators have yet to finalize the rules, so websites that were planning to serve as crowdfunding investment hubs are on hold. Some are getting around the logjam by trying to serve wealthy clients, known as accredited investors, who have always been able to invest in start-ups. “It is certainly a pain for us because we built something that we think is pretty incredible,” says Ryan Feit, chief executive of SeedInvest, a crowdfunding site that is stalled by the regulatory delay. “Regardless, it’s not the worst thing in the world to work with accredited investors.” Another method, peer-to-peer lending, leaves financial institutions out of the picture. Borrowers list the size of their desired loan and its purpose online. Lenders—a mix of regular people and investment firms—decide the amount they want to fund, based on the interest rate offered and their calculation of the risk. In one example, a bait-and-tackle-shop owner in Michigan listed a three-year, $6,500 loan on Prosper, a San Francisco-based peer-to-peer lender whose rivals include LendingClub and SoMoLend, to buy inventory for the spring fishing season. The appeal, which offered lenders a 15.79 percent yield, received a warm reception on the site. After three days, lenders had already funded 70 percent of the loan. CONTINUE READING HERE

Kabbage Expands Its Cash Advances to Brick-and-Mortars

Financing Kabbage Expands Its Cash Advances to Brick-and-Mortars By Patrick Clark May 14, 2013 Since 2011, Kabbage has advanced money to successful Amazon.com (AMZN) sellers, EBay (EBAY) merchants, and others who do business online but have a hard time getting bank credit. By crunching applicants’ transaction history, user feedback, and social media interactions, Kabbage assesses their riskiness and offers financing in a matter of minutes. Kabbage isn’t just targeting online sellers anymore: The Atlanta-based 100-employee company today announced it’s using QuickBooks data to make cash advances to brick-and-mortar businesses. Chairman Marc Gorlin says the company will take advantage of Intuit’s (INTU) popular accounting software, which has more than 4 million small business users, to analyze sales, payroll, and other data with “eyes wide open.” Many factors, such as a company’s hiring history and the number of vendors it works with, help inform Kabbage’s financing decisions. “It’s not any one data point; it’s tying it all together,” says Gorlin. Gorlin says Kabbage’s average financing is for about $18,000. Kabbage doesn’t lend: It makes cash advances. In return, clients pay from 2 percent to 18 percent on the advanced amount, and Kabbage pulls payments directly out of its customers’ accounts. Kabbage, backed by investments from Stephens Inc. Chief Executive Officer Warren Stephens and TPG Capital founding partner David Bonderman, is the latest in a series of alternative financing businesses to promote plans to expand. On May 1, On Deck Capital announced that Google Ventures, PayPal (EBAY) co-founder Peter Thiel, and others had invested $17 million in On Deck, which uses electronic cash flow records to underwrite working-capital loans to small businesses that banks usually avoid. The next day, Lending Club said Google (GOOG) was leading a $125 million investment into the company, amid news that the peer-to-peer lender was getting ready to start offering small business loans. Last week, startup Funding Community unveiled its site for crowdfunding small, short-term business loans. One factor propelling all these new spins on alternative financing geared at small businesses: tight credit. While there are signs that banks’ small business lending standards have loosened a little, difficulty obtaining credit is often blamed for the gap in hiring at small businesses and larger corporations. How wide is the gap? Here’s what Steve Matthews reported in Bloomberg News last week: Companies with fewer than 20 workers increased employment by 3.8 percent from February 2010 to April 2013, while the largest companies—with more than 1,000 on their payrolls—expanded their workforces by 8.6 percent, according to data compiled by Moody’s (MCO) and ADP Research Institute. Part of the problem, as Matthews reports, is that the community banks that have traditionally provided the large part of small business lending have been slow to recover from the financial crisis, despite a Treasury program intended to get small banks lending again. This is difficult partly because even small banks aren’t equipped to provide the kind of short-term financing in small amounts that alternative funders like Kabbage specialize in. Gorlin thinks banks could take advantage of Kabbage’s technology to increase their financing options. “We want to bring automation to the banks,” he says, “whether it’s through a white-label product or they do it through Kabbage.” Clark is a reporter for Bloomberg Businessweek covering small business and entrepreneurship.

Europe's jobs crisis comes into sharper relief

Europe's jobs crisis comes into sharper relief Reuters – 1 hr 10 mins ago. LONDON (Reuters) - Europe's policymakers are starting to recognise chronic unemployment as a crisis in its own right, rather than something that will resolve itself when the economy improves. Compared with the United States, where the labour market is a key determinant of economic policy, European authorities have been more passive in their approach to jobs for many years. But the depth of the jobless epidemic, especially in euro zone countries like Spain and Italy, means their rhetoric is at least changing. Friday's spring economic forecast from the European Commission was a case in point. Invoking European Central Bank President Mario Draghi's pledge to protect the euro, the European Union's Economic and Monetary Affairs Commissioner Olli Rehn said the EU would do "whatever it takes" to overcome the jobless crisis. In previous forecasts, Rehn mentioned reducing unemployment mainly as something that would only come further down the line, after the completion of painful reforms. Jobs data from across the Atlantic, also released on Friday, contrasted starkly. The United States added 165,000 non-farm jobs in April, while the unemployment rate there fell to 7.6 percent, its lowest since December 2008. Business surveys on Monday will reveal more about the pace of job losses in the euro zone, where the jobless rate hit a new record 12.1 percent in March, meaning more than 19 million euro zone citizens are out of work. "At some point they're going to have to change tack, and maybe 12.1 percent unemployment is the time," said David Blanchflower, economics professor at Dartmouth College in New Hampshire, and formerly a Bank of England policymaker. He noted ECB President Draghi did not mention the labour market at all in his economic analysis of the euro area last week, after cutting interest rates to a new record low of 0.5 percent. "If you see the latest minutes from the (U.S. Federal Reserve), they really are targeting unemployment, as they should be. They really do take it seriously," he said. CONTINUE READING NO QUICK FIX

Let Us Know About Innovators and Leaders in Small Business Financing!

Let Us Know About Innovators and Leaders in Small Business Financing! By: Don Graves 5/3/2013 Page Content President Obama and Secretary Lew are committed to creating an environment where America's small businesses can grow and prosper. An essential aspect of making sure these engines of job creation succeed is ensuring that entrepreneurs and small business owners have access to the capital and credit needed to turn their ideas into successful enterprises. The Department of the Treasury, the Small Business Administration (SBA), and agencies across the Administration have taken many steps over the last four years to support small business growth and enable innovation and expansion of small business financing. But there is more work to do. On June 10, 2013, Treasury and SBA will host a Capital Access Innovation Summit. The day-long event will convene innovators in the field of small business financing with the goal of sharing innovative practices in the private sector and learning how the Administration can enable or encourage increased access to capital for small businesses. Building on the success of two previous capital access conferences, we will focus primarily on three areas: (1) Public and Private Capital Markets Access for Small Businesses - including innovative solutions to address any remaining gaps, (2) Small Business Financing: Data and Innovation - how the delivery of small business capital could be enhanced through emerging technology-enabled platforms and other innovations, and (3) Engaging Large Companies to Promote Small Business Growth. To inform this conversation about small business growth, and help set the agenda for this year's Capital Access Innovation Summit, we want to hear from you. Do you know leaders and innovators in small business financing? Using the form below, tell us about (a) leading innovators using technology and data to expand capital access; (b) effective partnerships between large and small businesses, and (c) thought leaders who have identified gaps in small business financing and effective solutions to fill these gaps.​ Don Graves is the Deputy Assistant Secretary for Small Business, Housing, and Community Development Policy at the U.S. Department of Treasury and has served as Executive Director of the President's Council on Jobs and Competitiveness.

FED Loans Backing AIG, Bear Repaid

Federal Reserve Says AIG, Bear Stearns Rescue Loans Paid By Jody Shenn and Zachary Tracer - Jun 14, 2012 4:59 PM ET The Federal Reserve has been repaid for its roles in the U.S. government bailout of American International Group Inc. (AIG) in 2008 and the rescue of Bear Stearns Cos. earlier that year. The central bank’s $53.1 billion of loans to vehicles called Maiden Lane and Maiden Lane III, created to help save the companies, were paid back with interest, the Federal Reserve Bank of New York said today in an e-mailed statement. A separate entity, Maiden Lane II, finished being unwound through sales of mortgage assets earlier this year. “This is a major milestone for the bank and for the public,” New York Fed President William C. Dudley said in the statement. “The Maiden Lane entities were established to protect the U.S. economy at a time of great economic stress, and I am pleased we were able to accomplish that policy objective and be fully repaid.” Taxpayers remain at risk in the wake of the September 2008 bailout of AIG, once the world’s largest insurer, which swelled to $182.3 billion in value. The Treasury Department still owns 61 percent of the New York-based company and needs to sell the shares at an average price of $28.72 apiece to break even. The Fed may still generate profits as it disposes of remaining assets in the vehicles. The district bank this year has been selling mortgage debt acquired in the AIG bailout after halting a series of 2011 auctions following a selloff in credit markets. AIG has said it’s been among buyers. The Fed has continued to sell assets from the Bears Stearns-tied Maiden Lane. Fed’s Lessons The repayment of the Fed’s loans may help inform future central bank strategies, said Robert Eisenbeis, a former research director at the Atlanta Fed and now chief monetary economist at Sarasota, Florida-based Cumberland Advisors Inc. “There’s been a lot of precedent set in terms of the extent to which the Fed will feel free to use a lot of different methods” to aid markets during crises, Eisenbeis said in a telephone interview. AIG advanced 2.4 percent to $31.03 in New York trading. It has gained 34 percent this year. The government’s cost basis for its shares in the insurer was $47.5 billion, excluding unpaid dividends and fees of $1.6 billion. The Treasury recovered more than $17 billion in three share sales, cutting its stake from 92 percent. That leaves an investment of about $30 billion. AIG retired a Fed credit line last year. Strong Demand AIG SunAmerica Chief Executive Officer Jay Wintrob said yesterday that proceeds from asset auctions were sufficient to repay the Fed for its loans to Maiden Lane III. “We’re pleased that the Federal Reserve has decided to cash in now and capitalize on the strong demand,” Wintrob said at a conference held by Morgan Stanley in New York. The Fed took unprecedented steps in 2008 in a bid to thwart the deepest financial crisis since the Great Depression. Its assumption of assets in AIG’s bailout followed a template used in the rescue of Bears Stearns through that investment bank’s emergency sale to JPMorgan (JPM) Chase & Co. Maiden Lane was created with $30 billion of Bear Stearns assets, including mortgage securities and loans, that JPMorgan didn’t want to take on as it agreed to buy the 85-year-old company for $2 a share in March 2008. Bear Stearns faced a funding squeeze that had led the Fed to offer to lend $13 billion through JPMorgan earlier that month. Its sales price was later raised to $10 a share, or about $2.3 billion. Buying Assets The Fed created Maiden Lane II to buy about $39 billion in residential-mortgage securities owned by AIG, as well as Maiden Lane III to purchase $62.1 billion in collateralized debt obligations. The debt was purchased at about half its face value, reflecting markdowns AIG had already taken, with the Fed lending the facilities a total of $43.8 billion. Maiden Lane III was used to cancel credit-default swaps that AIG had sold to protect counterparties against losses. The insurer needed to be rescued after it was unable to meet collateral calls from banks including Goldman Sachs Group Inc. (GS) and Societe Generale SA. The facility bought the CDOs that AIG insured from the companies, sparing the Wall Street firms from losses and sparking criticism from lawmakers who called it a “backdoor bailout” of banks. The move drew reviews by the Troubled Asset Relief Program’s special inspector general and the Government Accountability Office. Fed’s Profit Sales of $19.2 billion of Maiden Lane II assets to Credit Suisse Group AG and Goldman Sachs in January and February helped the Fed unwind that vehicle at a profit of $2.8 billion. The bonds in Maiden Lane II packaged individual home loans, while the CDOs in Maiden Lane III sliced mainly mortgage-backed securities into new debt with varying risks. The New York Fed is scheduled to auction tomorrow $5.2 billion of CDOs in Maiden Lane III created by TCW Group Inc. under former chief investment officer Jeffrey Gundlach, according to its website and data compiled by Bloomberg. TCW managed almost twice as many CDOs that ended up in Maiden Lane III as anyone else. As the rest of the Maiden Lane III assets get sold, AIG will receive the first $5 billion of proceeds following the repayment of the Fed’s loan, about $600 million in accrued interest, and then one-third of additional money, according the New York Fed’s website and Wintrob. “That will provide funding for the company to pursue buybacks,” Josh Stirling, an analyst at Sanford C. Bernstein & Co., said by phone. JPMorgan Loan JPMorgan’s $1.2 billion subordinate loan to Maiden Lane will be repaid first with the proceeds of sales of its remaining assets, after which the Fed will receive the rest, according to the website. Dealers acquiring the CDOs in the central bank’s sales have been reworking the debt before reselling it to investors. Deutsche Bank AG and Barclays Plc unwound $7.5 billion of commercial-mortgage CDOs they bought in April to sell the underlying holdings, while Bank of America Corp. split an $850 million class of a CDO tied to better-quality home loans it acquired last month into two pieces, with a $510 million slice receiving an investment-grade rating of BBB from DBRS Inc., according to data compiled by Bloomberg and a statement from the grader. To contact the reporters on this story: Jody Shenn in New York at jshenn@bloomberg.net; Zachary Tracer in New York at ztracer1@bloomberg.net To contact the editors responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net; Dan Kraut at dkraut2@bloomberg.net.

Ron Paul Slams Ben Bernanke on Currencies and Inflation 2-29-2012

Fed Ponders Why Inflation, Deflation Threats Declined