The Promise of Securitization
Small businesses are the lifeblood of the U.S. economy, generating well of half of net new jobs annually over the past decade. Firms owned by Latinos, African Americans, Asian Americans and Native Americans account for 17.9 percent of all small businesses, and represent the fastest-growing segment of small firms.
Yet minority-owned businesses receive only a fraction of the financing that falls outside of SBA loan programs. They tend to be financed by personal savings or bank debt rather than state-run small-business programs, venture capital, private equity, or mezzanine funds. Democratizing their access to capital is essential if these firms are to reach their full potential.
Increasing Capital for Small Businesses: The Promise of Securitization analyzes the prospects for increasing liquidity in emerging domestic markets. This in-depth study examines the feasibility of securitizing small-business loans for lenders who service low- to moderate-income and/or ethnic borrowers. The authors address each barrier aEURo from difficulty in standardizing loan criteria to restrictions on working capital aEURo and offer constructive solutions that can overcome these hurdles.
Based on an extensive survey of lenders and other potential participants in this market, Increasing Capital for Small Businesses: The Promise of Securitization creates a practical model for securitizing small-business loans. By using a collateralized loan obligation (CLO) vehicle and bundling the securities through an advance-commitment agreement, lenders can increase the capital available to entrepreneurs in underserved communities. This study creates a roadmap for expanding opportunity across the United States and spurring overall economic growth.