09.09.2009 20:00:32

botes

After a number of recent articles on Business Finance, Micro Funding and a range of other options for funding a business this unique approach mentioned in the Viva Start-ups Blog, to funding entrepreneurs in need while creating a business of your own from it really caught my eye. This may not be the type of business finance that most of you reading this Blog have in mind when thinking of the issue but for many entrepreneurs out there without the means to get the start-up funding they need is a great solution and potential first step to a life as a business owner.

By now most of you have heard of low cost funding schemes such as that pioneered by Grameen Bank and other including  Kiva but also Wokai and Jolkona, but the idea mentioned here is unique in the sense that you are not actually providing funding for these businesses, but simply guaranteeing their loans.

It works as follows: Potential business financiers browse the provider of the service’s site, which features a number of pre-screened entrepreneurs in developing countries. They then choose one to help, and contribute a loan guarantee of any amount through PayPal. The provider of the service then consolidates the guarantees on multiple loans for the micro finance partner involved and issues a guarantee, which is deposited as collateral with the local bank. With the assurance of that collateral, the bank is then willing to lend funds—the amount depending on the guarantee percentage it requires—to the micro finance institution, which in turn lends to the individual entrepreneur who was supported. The guarantor can track the entrepreneur's progress building their business, and when the entrepreneur repays the loan, the funds are returned to the guarantor's PayPal account. The provider of the service, meanwhile, earns interest on guarantee funds and in addition may even charge its partners a small fee for providing the guarantee.

According to the viva start-up Blog and we fully agree, there really does not seem to be much of catch. A great business with the potential to assist numerous entrepreneurs to not only start a business, but create a livelihood for themselves and those in their communities.

Loan Guarantees | business finance ideas