- It is foolish for any investor, not able to control management and/or without quality access to inside information, to invest in the common shares of an enterprise. Because a distant/minority shareholder can only guess at company valuation, and has no power to stop management from overpaying itself or bankrupting the company before paying him.
- It is stupid for founders/management of an enterprise to finance exclusively with standard debt, because they risk losing the enterprise too easily due to solvency covenants.
New project and operations are financed through new soft loan issues, at buyer's bid rates. The average resulting interest rate is the natural rate for the enterprise. Existing loans, in addition to being paid through operational surpluses, can be repaid (in queue order) by anyone willing to invest at slightly below the natural rate (through a market replacing mechanism that is essentially perpetual offer to sell at ever decreasing interest rates), or can be transferred (sold) in a private transaction to any other entity. There are 3 main loan queues. Each have queued payment priority:
Unsecured queued soft loans have the highest organic (from operational revenues/surpluses) payment priority. Traditional bond/debt investors benefit from investing instead in queued soft loans because they do not risk dilution from future debt.
Secured queued soft loans have next payment priority. They aren't quite as soft, as they do have fixed payments for interest and depreciation designed to keep the loan principal value equal to the secured value of an asset, but are soft in that pay downs below the secured value may be paid from contributions (profits) related to the asset, in addition to general contributions once unsecured soft loans have been fully repaid.
The last queued soft loan tranche is deferred management and labour compensation.
Because natural financed corporations require no equity investment, the ultimate purpose holders of the corporation are completely flexible. From greed-purposed (such as traditional public corporations, but 100% of stock ownership defaulting to founders/management.) to any percentage of social purpose (labour, customers, community, charity, innovation/R&D, society(tax), and humanity). When a founder chooses to have a fully social purposed corporation, he may typically assign himself a success prize for successfully delivering the enterprise to its purpose-holders: by paying off all of the soft loans it incurred to be in a position to reward those purpose-holders.
A key component for fostering trust and integrity of natural financed corporations is 3rd party control of all bank accounts and payments (and a 4th party bank that ensures 3rd party integrity). This 3rd party comptroller, trained in natural finance standards, can enforce all contractual promises made by the enterprise, and regulate salaries and rights the enterprise entitles itself and its employees. Management/employees never touch customer or investor money (except for cash sales). In the case of investor to investor loan buy outs, not even the enterprise bank accounts touch investor money.
Natural financed corporations allow a confident entrepreneur to finance projects of all risk profiles (including those with too little risk and return for traditional equity investment) as long as he is willing to draw low salaries until the success path for the project has evolved. As the company's success becomes established it is natural/normal for new investors to come in, bidding down the company's financing costs, and enhancing its success chances even more.
first of 3 part series introducing soft loans
Comparative advantage to traditional finance
Communal Equity accounting: Towards transforming every large organization into an egalitarian commune
Details on the comptrollership function
original genesis manifesto. Somewhat dated original thoughts for natural finance
