Tuesday, October 18, 2011

Commenter's Corner: Andrew on Starbucks and small-biz credit

This is in the comments on my Starbucks post, but I think Andrew S. offers some good and interesting commentary that I want to highlight:
It really doesn't reduce new and small businesses to charity cases. It treats CDFIs--and the services they provide in the form of technical assistance and low-cost credit--as charity cases which almost all of them have always been. That's the innovation. I think this effort does a good service by recognizing that not all sources of credit are the same and that getting a loan as a small business is not merely a matter of declaring your interest in getting one. If you have a sexy internet company with high growth potential, money can be easy to come by. If you want to start a lawncare business, not so much. The "technical assistance" part of the picture is important as well. There are lots of people with great ideas for starting their own businesses who don't really know how to use debt effectively. Coupling loans with that kind of education has proven extremely effective in the CDFI community. Kickstarter is great for some things, but it has high labor costs and it's an all-or-nothing payoff which is a terrible structure for a long term sustainable business to work with. Anyway, recognizing that the market has failed small business borrowers is a good thing, and recognizing that lenders who serve those borrowers will need subsidies to do so is also a good thing.

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