RevenueLoan Blog

June 10, 2011

Why Banks Suck Part 1: Overdraft Fees

Filed under: Uncategorized — rsbelcher @ 5:57 pm

Financial intermediaries, like banks, exist because of a market need. Pure economics. Someone a long time ago, saw a need in the marketplace for a financial intermediary, hung a shingle, and began the first savings and loan institution.

The market need that a bank fills is two-fold: to reduce information costs and to reduce transaction costs.

A bank reduces information costs by:
– reducing the search cost by bringing borrowers and savers together,
– conducting independent valuations to reduce adverse selection (aka price discovery), and
– monitoring

A bank reduces transaction costs by:
– providing denomination intermediation ( apparently doesn’t),
– providing maturity intermediation,
– providing a payments system
– diversifying risk
– hedging risk
– providing liquidity

By providing these services, banks lower the interest rate that borrowers pay and raise the interest rate that savers make. The bank makes money by setting these two rates slightly apart, thus “banking” the spread[1].

Now please tell me, where on that list is: “Charge usurious fees”?
We here at RevenueLoan work with small businesses who are all kind enough to show us their dirty laundry, giving us access to their bank statements. I am floored by the frequency (sometimes every couple of days!) and high cost ($75, $135 even $175!) of bank overdraft fees.

It is well documented that over the last 30 years Wall St has lured the best and brightest away from Main St by paying them huge bonuses for inventing new ways to charge fees to savers and borrowers and to increase the velocity of transactions to almost continuous.

Instead of workers innovating in the fields of medicine, education, manufacturing, design or engineering, our society has rewarded them for strangling those very industries they should be working for by adding complexity on top of an industry that at its foundation is a very simple one. The saying is about brain surgery and rocket science, not banking.
RevenueLoan is different. Wall Street got greedy and over-levered the country into the worst credit crisis we have every experienced.

We want to repower America’s small businesses and offer them credit. We want to do it a different way. Without all the fees.
For more information on financial markets in theory and in practice, RevenueLoan, why banks suck, and denomination intermediation (just fun to say), feel free to contact me.
Rob Belcher

[1] Dr. Alan Hess. “Effects of Information and Transaction Costs on a Financial Market”. 2000.


February 16, 2011

Are Citibank and LendingClub really “Greasy Loan Sharks?”

Filed under: Uncategorized — rlucas @ 1:56 pm
Tags: , , ,

Please let me clarify: I am not leveling an accusation at my fellows in the world of finance. Emphatically, I am not calling those companies by that epithet. But, it seems that they’ve adopted that name for themselves … (read on…)

Looking at some keywords to bid on in our neverending quest to bring the gospel of RevenueLoan to small business owners across the country, I got a bit fed up and tried out “greasy loan shark” as a possible keyword. Google said that there was no competition, so I went to check it out for myself:

Sho’nuff. Right there on the top and right side, four advertisements from companies who /chose/ to appear for the phrase “greasy loan shark.”

(Note to Citi, LendingClub, et al.: Maybe you meant to do it. But if not, perhaps you might want to add a few choice phrases like “greasy” to your excluded keywords…)

January 24, 2011

Financially doomed municipalities… and RBF to the rescue?

Filed under: Uncategorized — rlucas @ 9:54 am
Tags: , , , , ,

The naysayers — call them “bond market vigilantes,” call them “Cassandras,” call them “Chicken Littles” — have turned their attentions away from the nation’s banks and insurance companies to focus on the beleaguered state of our states (and cities and counties).

Financial blogger and sometime FT columnist Felix Salmon opines that very real (if, ultimately, indistinguishable from perception) circumstances could lead to states being “shut out” of the credit markets, as the specter of federally-countenanced state bankruptcy looms.  (In fairness, Salmon doesn’t think that the bankruptcies will happen, but he acknowledges that perception is reality here, when it comes to credit spreads, liquidity, and new issues.)

What does all of this have to do with RevenueLoan or Revenue-Based Finance? the gentle reader might ask.

Well, simply put: the states have two problems, and one of them is a financing structure problem.  Namely, they have fixed coupon debt that must be repaid on schedule.  Times will get better for Illinois, and California, and every other muni issuer who’s in a world of hurt right now.  But the fact that a new economic up-cycle may leave state coffers flush in a decade is cold comfort today when creditors face receiving scrip or other ersatz paper.  (The other problem is fiscal, with too much spending and not enough taxes, but that’s a whole other kettle of fish.)

But don’t think that we’re the only ones saying Revenue-Based Finance could have averted the muni woes we’re seeing today.  Last year, econo-guru Robert Shiller and his colleagues came up with the ultimate RBF instrument: the “trill.”  Simply put, the “trill” would be one one-trillionth of the GDP of the issuer (nation, state, etc.) — in effect, a small percentage of topline revenue.

Would it work?  Could it work?  Only, I think, if the issuer has significant potential for either sustained topline growth, or windfall / bumper crop years.  That could mean corporate taxes on boom-bust industries (commodity extraction? agriculture?), high marginal personal income tax rates that kick in during bubble tops as people sell appreciated assets, or simply extremely strong population and industry growth prospects.

An interesting aside for a Monday morning.  Alas, we won’t be solving this problem top-down — our contribution will be helping finance and grow those small businesses who will provide the backbone of a muni and national recovery.

October 28, 2010

After the wells run dry. Financing in a post credit card, post bank-loan world.

Filed under: news,Uncategorized — Christian @ 11:04 am

Thomas Thurston graphs the decline in credit options and loan availability for small business owners, in this blog post.

So where can businesses go today to get the funding they need to grow to the next level?

At RevenueLoan we call these companies “money machines”. You already have customers and revenues, and you have a solid plan for how to invest $100-$500k to bump your revenues up to the next level. But who is going to give you money without taking an equity stake in your business or forcing you to personally guarantee the loan with your home or other personal assets?

The revenue-based finance (or royalty-based finance) model allows you to get the cash you need for expansion now, and pay it back from your increased revenues. This is a win-win situation since the investor’s and entrepreneur’s goals are tightly aligned. (Finally!) No more inflated valuations and pressure to sell out early, no more wondering if you are going to lose mom’s house because the economy had an unexpected burp.

The big payoff in the end is the bottom line benefit to the American economy. There are more than 22 million “small businesses” in the United States, and if we can help a few of them grow, hire more people, make more money, and support their local economy, then we have done a good day’s work.

Now go fill out our online application, and tell us what YOU would do if you got $250k before Christmas.

Venture NW 2010

Filed under: news,Uncategorized — Christian @ 9:56 am

On November 4th, 2010, Randall Lucas will be attending Venture NW 2010 as a representative of RevenueLoan and a champion for the funding model of revenue-based finance.

The day-long event will feature presentations from 10 exciting startups from Portland (and surrounding areas).

October 26, 2010

An email to RevenueLoan

Filed under: news,Uncategorized — Christian @ 1:18 am

Andy Sack received an email from someone who is looking for financing through RevenueLoan. Their request for money without diluting their equity stake would seem ridiculous even a few years ago. But this simple exchange shows how things have changed, and the kind of assistance RevenueLoan can provide.

Read the email here.

October 21, 2010

WSJ on the VC vs Angels battle

Filed under: news,Uncategorized — Christian @ 8:14 am

Tomio Geron of the Wall Street Journal’s “Venture Capital Dispatch” blog posted a fascinating article a few days ago about how Venture Capitalists are agreeing to inflated valuations of internet startups, in an effort to fend off Angel Investors from the same deals.

Since our niche at RevenueLoan is serving companies that already have $1M to $10M in annualized revenues, this battle between Angels and VCs doesn’t involve us. But it illustrates the battles for capital that are raging now.

It also puts RevenueLoan in a good position to work with these companies after they launch, and they may need a cash infusion (without further equity dilution!) to bump their business up to the next level.

Read Mr. Geron’s full article – A Price Hike To Seed Web Start-Ups – at the Wall Street Journal’s web site.

October 20, 2010

Andy Sack joins VC Crossfire panel on Oct 28

Filed under: news,Uncategorized — Christian @ 10:54 am

How do companies get the money they need to grow, when venture capital is scarce?

On October 28, 2010 at the new Amazon headquarters in South Lake Union, Seattle, four innovative financiers will lead a panel discussion on exactly this topic:

  • Andy Sack – TechStars, Founder’s Co-Op, RevenueLoan
  • Tom Alberg – Madrona Venture Group
  • Bob Nelsen of Arch Venture Partners
  • Chris Henney – Co-founder of Immunex, Icos, and Dendreon

Read the article here.

RSVP for the event here.

August 30, 2010

Revenue-Based Finance & The Cost of Capital from GSI

Filed under: news,Uncategorized — Christian @ 9:19 am

Using an excellent real-world example, this article from financial think-tank Growth Science International looks at the cost of capital, and how revenue-based financing (RBF) can help an established business leap financial hurdles.

Cost of capital is a function of risk.  Everyone knows that.  More risk, higher cost; less risk, lower cost.  But what does that really mean?

Read the full article here: Revenue-Based Finance & The Cost of Capital

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