Community Sourced Capital Helps Bring Small Businesses and Local Communities Together
- April 21, 2015 | Ryan O'Donnell
We're always looking for tools or services small business owners can use to move their business forward. Recently, we sat down with Rachel Maxwell, CEO of Community Sourced Capital (CSC) to hear more about how they're bringing local funding to small business owners.
CSC recognizes that small businesses are the key generators of jobs in our economy and character in our communities. Yet, affordable funding acts as a barrier to many small business owners. CSC exists so businesses can access affordable capital from their community.
Located in Seattle, Community Sourced Capital has provided funding for businesses located in Washington, Oregon, Virginia, North Carolina, New Hampshire, Maine, and Massachusetts.
Tell me about Community Source Capital.
Community Sourced Capital formed around the idea that we need to strengthen local economic resilience and that we also need to give real people more opportunity to invest in their own community. Local businesses that need to raise capital for a project or growth can come to our platform to run a campaign and raise zero-interest loans from their own community from $5,000 to $50,000. If a business needs more than $50,000 we can help connect them with healthy and affordable capital providers who can serve their needs. Building local economies is really what we're all about.
What's the process for backing a local company?
Companies are backed with a mechanism we call a "Square". A Square represents $50 that is loaned by a member of the community. When you buy a Square, you become a "Squareholder" for that business. We then make a loan with all those Squares to the business and the business repays that loan; just the principal amount, over time.
We manage all the repayments and communications to their Squareholders. So business owners have this really fabulous, kind of sticky relationship with members of their community who have made these zero-interest loans to them because they're touched every month with a repayment and news about the business.
Things like open rates are very high for the Squareholder portfolio emails and we find, anecdotally anyway, that Squareholders will actually frequent the businesses much more often after they've bought Squares in a campaign.
Talk to me about why local businesses are so important.
Local small businesses really make up the composition of a community. But also there's research that has been done on communities that have lots of local businesses, they actually have higher real estate values, they have more citizen engagement, they have greater job rates. So all those good things happen as a result of a strong local business community.
As a CSC funded business, what are my responsibilities?
A small business has to do the legwork in order to get the funding because really, it's directly from their community. They have to market the campaign. Our loan repayments, to some degree, are based on revenues. So that's a very important piece of the puzzle. And then we're really concerned about the health of small businesses. So we'll pay attention to whether this capital actually is helping them and if it's going to help them grow. So it has to be a growth related, growth or thriving capital.
Other barriers might be that they have to be an existing business. So they have to have a revenue stream.
Why do you think small businesses should work with CSC?
It is really hard for small businesses to secure small loans from traditional banks. There's a lot of hoops to jump through and it takes a lot of time. At the moment, there are quite a few other platforms that offer small business funding and it seems like quick money, but it comes at a very, very high cost with interest rates from 30 to 50 percent or even higher.
CSC believes it is really important to help small businesses understand what their real options are and what their responsible and friendly options are when they're looking at financing.
How long is the typical campaign from start to finish?
The approval process can be as short as a few days and possibly even a little faster than that. The platform does most of the work for us so it's quite automated, although there's a little bit of behind the scenes because we double check things and want to be sure we've communicated with the business. And then the campaigns are generally four weeks long, so 28 days.
Sometimes we talk about it as "money in a month from people who love you."
The businesses on the CSC website all look so...happy. What can you tell me about that?
Because they're funded by their community, business owners report it's actually a really, really nice experience. They're really energetic people who are doing work that connects them with lots of people who love them. And I think we particularly reach those kind of small businesses. Generally, that's for real.
They're thriving and they're doing something that's really valuable in their community and they like it.
Can you tell me about a particular company that is working with CSC?
Let's talk about Intrigue Chocolate. They're wonderful people. We've been talking to them for a long time, they just didn't have the right campaign, but they are so community-oriented that this kind of healthy, friendly capital was really appealing to them.
They are very, very familiar with crowd funding because they ran a Kickstarter campaign a few years ago that was very successful for them. We often think that we're where businesses turn when they are graduating from Kickstarter because, you know, people only like to donate so many times or they only like to buy so many things.
This is the way to have the community that loves you participate in financing your business in a very reciprocal manner. So people are generous because it's a zero interest loan, but they also get repaid. It feels really good on both sides. Their campaign just closed this month and we delivered a check for $40,300 to them - $20,150 was raised from their community and a matching fund from Craft3, a local CDFI provided the other $20,150.
How do I know CSC is right for me?
If you're a business that is really interested in healthy capital and you have a community, you’re a good fit. You don't need to have tons of customers. We ran a campaign with A&R Solar, a solar installation company, and they only have a small number of customers but they have a really strong community because the business owners are involved in policy and all kinds of different things in their own community.
A CSC campaign is great because actually what you're doing is giving people an opportunity they wish they had. They are able to participate in financing the businesses they love in their own community, and for the business, instead of going for financing at some anonymous institution, what you're doing is fully engaging the people who have a concern about your business. That will actually make them more actively your advocates.
Where do I get started?
You can visit the Community Sourced Capital contact page to get started. You can also follow us on Facebook or Twitter.