Efficiency is the Opposite of Resiliency

Our financial system has been moving to become more and more efficient – money moves instantly via the internet and apps, and small business loans can show up in a bank account tomorrow. Online lenders are making it quick and easy to access capital. Loans are available in minutes – either with a click of an app or point of sale software like Square Cash. OnDeck capital loans are built right into Quickbooks.

To a small business owner, access to capital is a challenge, so this move to easy access to capital feels like it should be a welcome one. But what is the catch?

We’ve seen the impact that too-easy access to capital can have on a financial system. Most are familiar with the easy access mortgages that led to the 2008 financial crisis, but fewer see what’s happening to our small businesses. These quick and easy loans come with a hefty price tag, offering APR’s in the triple digits. Often, these types of loans are what’s called “Merchant Cash Advance” loans, which are repaid daily as a portion of sales. It looks easy to just pay a little bit of the loan back every day based on a percentage of your sales. With this type of repayment schedule, it’s really hard to know the amount of interest that you are paying on a loan. In one example studied by the Woodstock Institute,a provider gave an advance of nearly $24,000 to a business, charged $1,100 in origination fees, and collected its payments by deducting $499 a day from the business’ sales for 76 days. In total, the borrower paid nearly $37,500 — an effective interest rate of about 346%.” Next time you are faced with one of these overnight loans, you can calculate your own APR here. We hope you never have to.

Every week CSC speaks to someone burdened with high-interest debt from online lenders that was too easy to take on, but nearly impossible to break free from.

As the high cost of online lenders’ shutters small businesses, the real cost to this efficiency is the resiliency of our local businesses, which in turn, threatens our local communities. Small businesses are the lifeblood of our economy, creating not only jobs, but storied histories, preserving character and culture, and creating points of connection for people in our neighborhoods.

Finance should serve small businesses to help them grow and thrive- strengthening our communities. Capital should encourage resiliency. This takes time and relationships. But it’s exactly what we are working towards. Connecting small business owners with shared local capital from the people who know and love them is a step in the right direction for building strong local economies.

CSC loans do not happen overnight, but with community, love, and sharing, our small businesses can thrive.

The Purpose of Capital

Jed Emerson is a leading thinker and an innovator in the Impact Investing community. He made this remarkable, beautiful and life-affirming set of statements on the purpose of capital at SOCAP17:

“The purpose of capital is to advance a more progressively free and just experience of life for all

The purpose of capital is to negate, resist, and challenge the present economic social and environmental and political realities in which we find ourselves

The purpose of capital is to serve as a fuel for freedom and the attainment of the greatest potential for each person in every community”

Connecting with others—good for business as well as health

We were fascinated by this Harvard Business Review piece on the impacts of loneliness by former Surgeon General Vice Admiral Vivek Murthy, which talks about recent evidence that social isolation shortens lifespans in a way similar to smoking 15 cigarettes a day.  It is—perhaps unsurprisingly—also bad for business.

“At work, loneliness reduces task performance, limits creativity, and impairs other aspects of executive function such as reasoning and decision making. For our health and our work, it is imperative that we address the loneliness epidemic quickly.”

And the trend towards disconnection and isolation is getting worse—new models of working remotely and factors like the rise of the “gig economy” create flexibility for workers but reduce the structural community-making of a traditional workplace. Researchers for Gallup found that having strong social connections at work makes employees more likely to be engaged with their jobs and produce higher-quality work, and less likely to fall sick or be injured.

Dr. Murthy does not mince words, calling the problem an epidemic. “If we cannot rebuild strong, authentic social connections, we will continue to splinter apart — in the workplace and in society. Instead of coming together to take on the great challenges before us, we will retreat to our corners, angry, sick, and alone. We must take action now to build the connections that are the foundation of strong companies and strong communities — and that ensure greater health and well-being for all of us.”

 

 

Coalition Seeks to Build “People-Powered Economy” in Seattle

Check out this great piece from the Public News Service

October 2, 2017

SEATTLE – Like many cities across the country, Seattle is finding great wealth often brings great wealth disparity.

The Emerald City has the fifth highest median income among large U.S. cities, is home to two tech giants in Amazon and Microsoft and is the nation’s fastest growing big city.

But some Seattleites see the downside of this growth as lower-income residents, particularly people of color, are being left behind.

Beto Yarce, executive director of the small business support group Ventures, is part of the People’s Economy Project. He says his mission is to help small businesses with a hand up instead of a handout.

“Creating a solution to alleviate poverty through economic empowerment,” he states. “So, what does that mean? It’s like creating business development training programs and really educate these communities on how do they budget better.

“How do they make better decisions about their money? How do they change their relationship with their money?”

The People’s Economy Project brings together small business developers with the goal of increasing minority owned businesses and providing assets for lower-income communities in Seattle, noting that small businesses act as neighborhood anchors.

The project takes its agenda on the road this fall to neighborhoods that have benefited least from the city’s rapid growth.

Rachel Maxwell, executive director, Community Sourced Capital, is also part of the People’s Economy Project. Her organization helps crowd source zero interest loans for local small businesses. She says the project came out of a concern that the economy isn’t serving all Seattle residents.

“All those folks were convened to consider what were the questions, and design some initiatives that they could present to the civic leaders in Seattle around how it might look, or what might be different, or new things that could happen that would develop a people-powered economy here,” she explains.

Maxwell notes that the project’s agenda can be implemented in any city. She credits the Northwest for being open to new approaches to protecting communities’ assets.

Eric Tegethoff, Public News Service – WA

The role of right (not THE right)

We are living in an historic moment. This moment makes us consider what is right, as in morally right. It’s easy to talk about what is wrong. What’s hard is to articulate what is right. This can also be said of our financial world.

In fall of 2015, I was invited the United Arab Emirates to represent Community Sourced Capital at EFICA, the Ethical Finance and Innovation Challenge, an annual award made to a financial organization that represents the values of ethical finance. This brought the question of “What is ethical finance?” to front and center for me. “Ethical” and “finance” are words you just don’t see together here in the United States.

I was the only American there. And I was the only woman and the only non-Muslim in my category. I made the long trip to the UAE twice for the competition and had the pleasure of meeting Nobel prize winner Muhammad YunusFounder of Grameen bank and considered the grandfather of microlending. He said about CSC, “It is a good business.”

At CSC, we’re engaging with the question: why not put ethics and finance together?  We ask, why are people always consumers buying something for themselves, investors looking for the highest return, or philanthropists giving away their money. We think the narrowness of these categories leaves a lot of room for something else– for generous reciprocity in finance.

In the UAE I learned about Islamic Finance, which is considered to be ethical finance. Zero interest lending is one of the components of Islamic Finance and is part of Sharia Law. Islamic Finance, where lending is always “riba-free” (non-interest-bearing) teaches us something about the generous instinct that lives within our Squareholders. Whether or not they know it, Squareholders are taking part in ethical finance.

When I blogged about my trip to UAE back in November 2015 I said:

…we find that people intuitively understand that their money is creating value when they participate in making a zero interest loan to a business in their community….People WANT to make generous loans to their neighborhood businesses.”

Squareholders use their money to create real value in their communities, and do this outside of the traditional investor, philanthropist, or consumer roles. At CSC we believe it is morally rightit is ethicalto consider money as a tool for creating value in our world, and not to think of it as an end in itself.

Moving Money in the Direction of Life

One month ago, when we began to ask Squareholders to move the money in their CSC accounts, we didn’t know how many of the 5,200 folks with active balances would still be thinking about CSC. Or if they remembered who we were! And we certainly didn’t know what—if anything—they would do if we asked them to activate their balance.

To date, nearly 16% of Squareholders have withdrawn or donated their money, or told us they’re intentionally waiting until new campaigns come online to redeploy those funds.

You might think we’d prefer to get donations, and you are correct that they are helpful in this particular moment.  However, a larger truth is that inherent in CSC’s mission is our desire to help people’s money move.

If that means moving money out of our system and back into a community, we think this is a great outcome!  Because, as we like to say at CSC: money moves in the direction of life.

As we like to say at CSC: money moves in the direction of life.

Instead of representing objects or a balance in an account, we think money most elegantly represents the movement of energy; a dynamic expression of what we as individuals value.  This sounds pretty lofty, but there are concrete metrics that illustrate this idea. For example, multiple studies show that a single dollar spent with a local independent business generates two to four times as much wealth as expressed in jobs and income for the community than the same dollar spent with a national chain.

So we are really excited about the movement of ~$94,000 from static account balances back to where they are a dynamic expressions of values. The beauty of community finance is that money “spent” is just energy in motion, and that the act of moving it will always serve to multiply its power.

The Spirit of a Squareholder

One of the exquisite pleasures of launching our fundraising campaign has been connecting with the CSC Squareholders. Most Squareholders found out about Community Sourced Capital when a business or business owner they know and love asked them to participate in their loan by buying Squares. CSC wasn’t a familiar name to them when they first got introduced to the possibility of becoming a Squareholder, but once they heard about our way of building connected, community finance, they wanted to participate! 

Here are some things Squareholders had to say about CSC when they first bought their Squares:

I love the concept of supporting a business that I want to see succeed because it’s existence enhances my community.

I’m really excited to be part of the Community Sourced Capital program. I may need it some day!

I love having strong local businesses and this type of micro loan arrangement makes sense to me.

More recently, we’ve heard from Squareholders when they responded about our own campaign to fund CSC’s nonprofit reemergence:

We are in! Donate all & best of luck….we’re rooting for you & CSC.

Congratulations on CSC’s evolution into a non-profit.  Best wishes for future success in accomplishing your goals.

Happy to donate my (small) square balance to this cause. Best of luck!!

Thanks for your email.  I would like to leave the balance alone for now and support a future loan.  Thanks for reaching out and offering this option – I had forgotten all login info and would probably have taken no action if I hadn’t been offered the email choice.

I would love to donate the balance of my account. Thanks for all that you do!

We would like to withdraw the balance, which we will forward to our son and new daughter-in-law, who will certainly pour this gift right back into the community!

I think [Community Sourced Capital] can be life-changing. One starfish at a time. Thanks for the work you do. It matters.

During our campaign, Squareholders have made different choices about what to do with their money. And we love hearing every single story about why they made their choice. The spirit of a Squareholder is generous and connected to community. And we are so grateful! Thank you to each and every Squareholder—we love you!

New buds and shoots coming up at CSC!

No matter how many years I’ve lived, every spring I have what feels like a personal revelation. As I notice the trees and bushes come into bud and the beginnings of plants start to poke up out of the ground, I marvel: “So, all that energy was just being stored all this time!” Despite having having an intellectual understanding of the earth’s tilt and rotation, I slowly forget over winter what the rest of the seasons are like, and by February have accepted the barren landscape as a permanent reality.  

As CSC embarks on our next adventure as a nonprofit, it’s easy for me to draw a parallel with my annual amazement at the fecundity of spring following winter’s dormancy.  When we stopped making loans in winter of 2016, the reaction from our community was remarkable. This show of true gratitude for the role CSC plays in the world certainly buoyed our spirits, but it also galvanized our resolve to chart a new path.  Here’s a little sample of sentiment sent to us from our borrowers:  

“Just the other day I saw a square holder at a conference in Los Angeles and he “checked in on his business,” after all, he felt that he was part of our story and he is… And that’s pretty gosh darn extraordinary.”

“I’ve always felt that CSC has led the way for a financial/borrowing revolution. Can’t we just start a CSC campaign for CSC???? Thank you for all of your and the team’s wonderful work in supporting small businesses like mine. I will be happy to be a part of the next iteration of CSC.”

“You’re such a vital part of getting us back to being sustainable, and you’re such a vital (already) part of the small business community.”

“You dared to imagine and you went for it big time.  I still believe in you and know that whatever you morph into next will be amazing!!”

As we reemerge from our time underground, we’re grateful for the community that has been with us through it all.  While we “wintered over” organizationally, none of the incredible momentum and excitement about community-based funding has diminished. It has been there all along; ready to be a part of the next chapter.

Your belief in us has been a profound message for us to continue on.  I know I’ve gone overboard with the season metaphors but bear with me for one more because it’s the truest of them all: the faith and support that our community has demonstrated for resilient, connected, community finance is the energy that ensures its next growing season.

We are so excited to be continuing this story with all of you.

A Love Story for John Berdes

John Berdes, the CEO of Craft3, lost his life to lung cancer and we are deeply bereaved. John was Our friend, partner, and mentor. We loved him. He was a brilliant visionary who worked his whole life to build just and equitable finance for communities.

We met John almost three years ago. He pinged CSC and said, matter-of-factly:

I would be interested in sitting down sometime and figuring out what possible synergies there are between us. We seem to share some core beliefs.

Who could resist? That was the beginning of a beautiful collaboration and friendship. A delightful aspect of working with John was how he wrote. In the follow-on to our first meeting, he sent this morsel embedded in a list of what he could offer to CSC:

3. I am personally available to provide depressing perspectives and irrefutable truths (and generally opine on your considerable options).

Yup. That was John. We learned that his depressing perspectives were pretty much right on, and his irrefutable truths, well, despite our best efforts, they turned out to be just that.

John wanted to accelerate our brand of healthy community capital and he put 500,000 of Craft3’s dollars to work on our platform. He recognized the power of community based finance and supported Squareholders by matching their Squares one to one. Craft3 matching capital has built larger loans for 40 small businesses in Oregon and Washington.

John wasn’t only generous, he was also tough. He challenged us every step of the way– to do more for small community businesses (especially those left out of the financial system), to do it responsibly, and to build our business in a way that was sustainable so we too would survive. Sometimes it was tough to hear his perspectives. And often that was just what we needed.

In his frank way, shortly before he died, John said:

I’m not here to read tributes, just stories of love and life.

And so, John, this is not a tribute, but a love story.

Travels in the world of ethical finance and good business

Human scale investments and financial institutions that care;
Collaboration among competitors;
Businesses that build goods and services for the benefit of people and communities.
All things we are coming to expect.

I’ve been on several grand adventures in the past month. Some close to home and one far away – all close to my heart and strong indicators of a world turning its focus on the well being of people and planet.

B Corps Champions Retreat
My first visit to the B Corps Champions Retreat was inspiring. It’s an annual gathering of leaders of B Corporations – a group of businesses large and small, who have embraced the concept that how a business treats people and the environment matters as much as the finances. The business-for-good movement is growing: Etsy became a B Corporation this past year and Kickstarter is a BCorp too. Even Unilever has announced that it’s interested in becoming a B Corp. BCorps voluntarily meet high standards of transparency, performance and accountability to all stakeholders (not just shareholders). As a B Corporation for two years now, Community Sourced Capital signed a Declaration of Interdependence, signifying we are both dependent on and responsible for each other and our mutual well being.

Money on a Mission, Portland
Beneficial State Bank, where we bank, is one of few B Corp banks in the country. For the second year in a row, we co-hosted an event called “Money on a Mission” in Portland, Oregon to bring together small businesses and mission-driven financial institutions that provide healthy capital. It was a sell-out event. The Governor of Oregon and the Mayor of Portland both showed up. There’s a lot of new ways for small businesses to access capital right now, and many online sources choose not to disclose their fees to potential borrowers (and they do that for a reason). That message was continually reinforced throughout the evening: all borrowers can and should fully understand how much a potential loan will cost. If you don’t want to take our word for it, just check out what these entrepreneurs had to say about it.

Ethical Finance and Innovation Challenge
Finally, my biggest travel opportunity of the last month took me all the way to Dubai, twice. We were selected as a finalist for the Ethical Finance and Innovation Challenge. Islam, the official religion in Dubai, has embedded rules in its principles and laws about what money is for. I first learned about Islamic Finance when a colleague sent me an article from the Guardian with a provocative headline: Can Islamic Finance Save Capitalism?. The article started with a question: Is there a place for ethics and morality in the global economy? I can only think — How could we have a global economy devoid of ethics and morality? Our economy is a reflection of our society. Islamic finance holds that money is merely a means of exchange, not something with intrinsic value itself. Money should be used for things that build real tangible value for society. It was an honor to share an American perspective on this. After all, I was the only American presenting (and the room was filled with 350 people, including Nobel Peace Prize recipient Muhammad Yunus).

At Community Sourced Capital, we find that people intuitively understand that their money is creating value when they participate in making a zero interest loan to a business in their community –- over 90% of the businesses that run CSC campaigns are successful in finding people to fund them. That’s compared to other kinds of crowdfunding which often only see around a 40% success rate. People WANT to make generous loans to their neighborhood businesses. It feels good!

And here’s an amazing thing about finance that feels good: real value is created. Measured in jobs alone –- the $1.5 million dollars deployed via CSC so far has already contributed to creating over 100 new jobs. Real value, on the ground. That’s the goal.