RevenueLoan Blog

December 22, 2010

Emptying Hoover Dam with a Garden Hose

Filed under: news — Christian @ 11:48 am

Hoover Dam - Not full of money

The US Treasury Department today announced that it is releasing an additional $30 billion dollars to community banks, trusts, thrifts, etc to stimulate business growth.

Cool! So the Hoover Dam of money is finally going to be opened up to all these small businesses that are starved for growth capital, right?

Umm… yes, but…

All the old-fashioned bank lending practices are still in place! So if your solid revenues, good growth plan, Ikea desks, rented office space, and a couple of laptops weren’t enough collateral to secure the loan yesterday, nothing has changed.

It’s like connecting a garden hose up to Hoover Dam. Sure, there’s a lot of water available to that hose, but putting more water in the dam isn’t going to increase the flow through the hose.

And who ever said that the banks didn’t have enough money to lend? We gave them trillions of dollars and they sat on it. (Or renovated the CEO’s office for $1.2m, or hosted SuperBowl parties, etc.)

It is the lending practices themselves which have to change. There are several disruptive finance models out there right now (Kiva, KickStarter, ProFounder, RevenueLoan, etc) that are changing the funding game, and 2011 will be the year that people stop even bothering to ask a bank for a loan. There are far better deals on money out there, and much better terms available than the banks can offer.

You did hear about the $1-for-$1 loan, right? As long as the banks continue to do stupid things like that, filling their vaults with more cash will do exactly nothing for the small businesses who are actually creating jobs, paying taxes, and creating more than %50 of the GDP (according to the SBA).

Fresh thinking is needed. Therefore, disruptive financial models like royalty based finance will rule 2011.

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