Rethinking Money Part 7: Commercial Credit Circuits

Like the dinosaurs, banks that are "too big to fail" are about to become obsolete.

In the 2008-2009 financial meltdown, we witnessed the brittleness of our economy. One reason that our economy is so brittle is that there are too few ways for small to medium sized business (SMBs) to obtain short-term credit when they need it to do business.

Short-Term Loans Drive Many Parts of Our Economy

Suppose you run a company that manufactures machines for factories. Imagine that you get a large order to design, build, and install specialized machines for a factor. So you have a paying customer but you will not receive any money until you finish your job. To make that happen, you need to get a bridge loan from the bank. This is fine unless the banks are not making loans due to a difficult economy. In which case, bridge loans (short-term financing) are not available so you essentially cannot do business.

When situations like this occur, the transaction cannot complete because there are too few sources of liquidity for SMBs in our economy. So what do you do when you can’t get needed short-term loans from banks?

The answer might be to use a commercial credit circuit (C3). Here’s how it works.

Commercial Credit Circuits

To complete your order when the banks won’t give you financing, you join a C3. The C3 is a for-profit business. When you join, you take out insurance on your order. The insurance only pays off if the client that placed the order fails to pay upon delivery. Depending on the rules of your C3, you might buy the insurance from the C3 or obtain it at a local bank. Banks are more likely to sell your company insurance on an order in hard times than to extend a loan because there is less risk for them. They are not putting out any money up front.

Assuming your C3 is using the software we're developing at Cognisaya, LLc, your next step is to use the C3’s server to issue a currency that is backed by your order and insured in case the client defaults. You then use the currency to pay your suppliers and possibly your employees. The currency that you are using is essentially an insured invoice and you use it to pay anyone who will accept it.

Anyone who holds the currency can cash it in for dollars at any time. However, they must pay an interest fee that is prorated to the date that the client is expected to provide payment. The earlier the currency is cashed in, the less it is worth. If currency holders wait until the client has paid, then they get the face value of the currency. Even if the client doesn't pay, they still get their value because of the insurance.

What can suppliers and employees do with the currency you issue? If they also join the C3, they can use it to pay anyone else. Whoever they pay has the same choice; cash in or join the C3 and continue to use the currency.

Your supply chain is more likely to participate in the C3 than in other forms of alternate currency because of the insurance that you buy up front. They know for sure that one way or another they will get their money in the end.


C3s make good sense for SMBs because they can obtain their needed liquidity without the costs of obtaining short-term loans. They also enable transactions that would otherwise not take place-especially in difficult times. In addition, they tend to be lower-risk than loans because no money is provided up front. Granted, the company providing the insurance is taking a risk. But if they do business with SMBs with a good track record, there should be no reason for their risk to even be equal to that of a bank giving a loan. The reality is that if they do their jobs right, the risk will be substantially less.

Another benefit of C3s is that suppliers are paid immediately, regardless of the payment schedule of the original buyer. Also, no new legislation is needed to implement C3 networks. The only thing that is required is our software.

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