Community Sourced Capital Connects Businesses With Local Funds
RENEE MONTAGNE, HOST:
And small businesses are finding ways to raise money, outside the banking system, alternatives include Kickstarter. From member station WVTF in Virginia, Beverly Amsler reports on another lending site that serves small business, one that capitalizes on community spirit.
PENNIE AHUERO: We've got chocolate peanut butter and samoa.
UNIDENTIFIED MAN: Oh, boy.
BEVERLY AMSLER, BYLINE: Viva La Cupcake is a small eat-in bakery, located just across from an elementary school in Roanoke. So it's the perfect spot for parents and kids to stop for a sweet treat, throughout the school day. Pennie Ahuero and her husband opened the shop five years ago. And now they're ready to grow.
AHUERO: We want to buy a Viva La Cupcake trailer. So we can go to special events and birthday parties. And just be able to carry our cupcakes out in a nice little, cool trailer that they won't melt in the summertime events.
AMSLER: A refrigerated trailer costs up to $10,000. And the Ahueros didn't have the dough.
AHUERO: We did go through one bank. And it just was not the right fit for us and them. And so we were just kind of pondering which route to go next.
AMSLER: Their friend, Brent Cochran, just started a local branch of a Seattle startup called Community Source Capital. It connects small businesses with local residents.
BRENT COCHRAN: We allow local businesses, small businesses, like Viva La Cupcake here, to source loans directly from their community, so we crowdsource or crowdfund loans for local businesses.
AMSLER: Cochran says, most banks won't grant loans of less than $50,000. So many business owners are forced to max out credit cards or beg for help from friends and family. CSC helps small businesses extend that network. The Ahueros applied, were approved and made a plea for funds on their bakery's Facebook page. Debbie McClure, an occasional customer, saw the post and invested $50.
DEBBIE MCCLURE: It was very simple, just a quick fill-in on the computer, probably a single page, the basic information and a credit card. And then I received confirmation that I was a squareholder.
AMSLER: Sixty people are now Viva La Cupcake squareholders. Brent Cochran explains the term.
COCHRAN: It has some resonance with like the community square. It has some resonance with share and shareholder. But it's not a share and you're not a shareholder, and so it's just sort of one of those play on words. But it just happened.
AMSLER: Squareholders generally land between $50 and $250. Businesses pay a fee to sign on to CSC. And then pay monthly fees until the principal is paid back. The loans are interest-free. Investors get back only the principal and the satisfaction of helping to build a thriving community. In the year that it's been operating, CSC has garnered a collective $315,000 in loans for 21 businesses, mostly around Seattle, where the company is based. Finance professor, George Morgan, at Virginia Tech, compares it to microlending, a series of tiny loans that have been popular in South Asia.
GEORGE MORGAN: Now seems to be coming to the U.S. to meet the needs here. So I think it's a long-term trend.
AMSLER: But there are pitfalls to lending within a community. Morgan compares it to borrowing money from your in-laws or other family members.
MORGAN: It's not really clear what the priorities are, particularly in the event of a bankruptcy or a failure. Or even, you know, what if the business decides to move? How is the community going to react to that? The folks that provided them with funding may get very upset about that. They'll feel like they've left the local community, after they provided funding.
AMSLER: If a business goes under, squareholders lose their investment, though it's a small loss given the small size of the loans.
UNIDENTIFIED CHILD: I want a chocolate one.
AHUERO: You want the chocolate one?
AMSLER: For Viva La Cupcake, Community Source Capital maybe the recipe for success. The Ahueros passed their initial goal of $5,000. They found a used trailer to buy and plan to have it operating by the end of next month. For NPR News, I'm Beverly Amsler in Roanoke Virginia. Transcript provided by NPR, Copyright NPR.