Small Business Loans: Coming to a Hedge Fund Near You

Those wily hedge fund managers are up to their old tricks–giving us what we want and making megabucks in the process.  Their newest product is a hot, hard-to-get, one.  It’s business loans.

Hedge funds are offering asset-based loans to a select few business owners.  In exchange for sizable loans with short repayment periods (usually less than 1 year), business owners agree to high interest rates (around 2%-3% higher than a bank’s prime rate) and pre-payment penalties of as much as 10% if you try to pay up too early.

Needless to say, these loans aren’t for everyone.  They’ll hard to get.  They’re costly.  And, unlike banks, hedge funds are not regulated.

And that’s not the only barrier to entry into the fortunate few to receive loans from hedge funds; you’ll actually have to have a business that’s solid and be able to prove it.

That said, they are fast becoming the biggest game in town.  With banks and other traditional lenders scaling back their lending and boarding up their branches, hedge fund lenders are the new sheriffs in town.


Business plan – Lenders want to see that you have a plan for your business, that your business is on track with that plan, that you understand your market and customers, and that you have a real plan for spending their money–one that doesn’t involve you, a beach and a new passport.

Solid financials – They’ll want to see that you have enough money coming in to cover current expenses and the repayment of the loan.  They’ll want to see a healthy cash flow and any indication that your business isn’t heading for the rocks.

Assets – Since these are asset-based loans, these hedge fund lenders will want to see that yours are worth seizing should you default.  Assets they’ll consider include your receivables (payments from other companies or customers and sales revenue), valuable inventory, equipment, intellectual property and real estate.  They’ll also consider any equity you have in other businesses.

Physical inspections – Your local banker or your Bank of America rep are not likely to show up at your headquarters to inspect your operation or better understand how your business works, but asset-backed lenders are.

Other documents – Lenders will want to see insurance policies and other documents that impact the value of the business.

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