The real lenders of last resort

February 2, 2010 | By Jim Kim

We suggested not so long ago that pawnshops were the lenders of last resort to consumers. When it comes to small businesses, the last lenders may be purchase order lenders, a motley crew of firms that lend to companies with purchase orders in hand from actual buyers. The purchase orders serve as a guarantee of sorts that someone is actually committed to buying the product. So the lenders essentially pay to have the product manufactured and shipped.

It's a good business right now, though it may strike some as near usury. The New York Times says the interest is typically 3.5 percent for the first 30 days, and 1.25 percent for every 10 days after that, an annualized percentage north of 40 percent. Loans tend to be repaid quickly. These firms--the likes of King Trade Capital and Hartsko--are little known. Wells Fargo (WFC) is also in the business apparently.

The recession and crunch in small business loans have given their businesses a huge boost. These lenders do not think they're taking advantage of desperate family businesses, as they are assuming risks at a tough time and have to borrow from banks.

For more:
- here's the article