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”

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.

The boxes are getting bigger

Starvation Alley Farms is located on the small coastal town of Long Beach, Washington. It was one of the first funding campaigns on our lending platform. The leaders at Starvation Alley are cranberry farmers and business people, plus they have their eyes on the prize of influencing the food system. To do that, Starvation Alley completed a three year process of certifying the first organic cranberries in Washington State. Since then, they have recruited several other farmers to follow their lead.

Transitioning to organic can be an expensive process, and Starvation Alley knew they needed to beef up their business model to pay for it. They thought that juicing the berries and selling the raw, unsweetened juice to bars and restaurants would increase the per pound value of those newly organic berries. Not only would they make more per pound, they could also freeze the berries after harvesting them and then make sales year round to create a more stable revenue stream.

The lowest end industrial juicer they could find was $12,000, and since they liked the concept of seeking the needed capital from their community, they took a chance and raised $12,100 from over 100 people in the form of small generous 0% interest loans. They bought the juicer. That was three years ago.

That small juicer is the manifestation of what a little moment of possibility can turn into when it has a community of supports behind it. Following Starvation Alley’s example, four more businesses in Long Beach ran Community Sourced Capital campaigns. Now there are hundreds of community lenders who have deployed over $90,000 into their small town: an independent hotel has installed solar energy (twice), a bakery purchased a stove, a industrial designer manufactured a new product line, and another hotel opened its doors just down the road. Big changes made bigger by the people who see possibility.

A few weeks after Starvation Alley paid off its first community loan, it took out another loan for a bigger and better juicer. They raised over $30,000 to buy this one. This new juicer makes it possible for them to open a channel for other farmers in the area to make the transition to organic by selling their berries to Starvation Alley for juicing.

One little juicer changed the entire landscape of farming and small businesses in Long Beach. The spirit, commitment and action of the people in this small coastal town has helped create a world of possibility for small businesses and farmers everywhere.

Emerging solutions

As networks grow and transform into active, working communities of practice, we discover how life truly changes, which is through emergence…

As networks grow and transform into active, working communities of practice, we discover how life truly changes, which is through emergence … change begins as local actions spring up simultaneously in many different areas. If these changes remained disconnected, nothing happens beyond each locale. However, when they become connected, local actions can emerge as a powerful system.
-Margaret Wheatley

Partnering with places

Place is important to us. We think it could be important to financial systems, too. There was a time when the flows of money related to the place people actually lived. In fact, people still living now remember a time when there were dozens of local stock exchanges across the country, each supporting their own region. Our friend Amy Cortese at the New York Times wrote about that in a recent article.

So where did the “place” part of finance go? As financial markets grew, the rules governing them made it harder for local stock markets to exist. Then, technology made it easier for a global system to emerge. Year after year, our financial system found itself continually detaching itself from anything to do with a physical place.
Continue reading “Partnering with places”

A community line of credit: when possibility meets potential

There’s something exciting going on with Community Sourced Capital. Two businesses which  found success getting a loan from their community are at it again. Last summer, the Adrift Hotel borrowed $18,450 to finance a solar hot water installation for their sustainable hotel in Long Beach, Washington. They took on the loan, executed the project, held a party for their Squareholders, and perhaps best of all, they paid back the loan on schedule.
Continue reading “A community line of credit: when possibility meets potential”

Local finance matters

When people put their money to work for a business they can visit in person, an opportunity to see the impact of money in your community is born. Money doesn’t have to be thousands of miles away in New York. It can be just down the road.

We just wrapped up a fantastic loan with The Food Shed, a local business bringing healthy and local food to their community in Kingston, Washington. But we’re thrilled that the campaign brought more than local food to their community. It also brought local finance.

In fact, more than 90% of their Squareholders live within 40 miles of the business. We think that’s a pretty cool statistic, and not just because it’s fun to look at a map of Squares and Squareholders!

Kitsap Food Shed from Kitsap Sun

When people put their money to work for a business they can visit in person, an opportunity to see the impact of your money in your community is born. Money doesn’t always have to be thousands of miles away in New York. It can be just down the road. (My apologies to anyone reading this in New York. I hope you know what I mean.)

So here comes the part about persistence. Even though study after study confirms that locally-owned businesses improve the quality of life for communities, the collective impact of those businesses is still bundled in a complex set of benefits that are sometimes hard to see. In fact, it took a financial crisis for many Americans to see just how much we had taken for granted all along.

The concept here is simple, and perhaps a little redundant: the value of local finance is in visualizing the connection between your money, the financial system, and the health of your community. There’s a dollar bill at one end of the system, a resilient economy at the other, and a whole lot of thriving small businesses in between.

The photo included in this post is of Pam Buitinvield, an owner of The Food Shed. The photo is from the Kitsap Sun’s article Homegrown Loan Helps Kingston Cafe to Grow featuring The Food Shed and Community Sourced Capital.

In Pursuit of Growth and Capital

By sharing a company’s story of growth with its community, and most importantly, by sharing with one’s community an intention for a specific kind of growth, pathways open up for the flow of all kinds of capital.

Let’s start by asking a question: do businesses need to grow? I’ll cast my vote to say “Yes.” Actually, I will say “Absolutely.” Yet, there are many kinds of growth. We can grow up, we can grow out, and we can also grow wise. So let’s make sure we are talking about the same thing.

The economy we know today is pretty attached to a classic growth paradigm that demands growth, and mostly growth that manifests itself in growing revenue or profit or, in its largest sense, GDP. At the micro level, I witness this paradigm in action every time I hear the question, “How are you going to grow this business?” It’s a call you can’t ignore: grow or die.

I’m not about to dispute the value of focusing on growth. It has created tons of progress in certain sectors of our society. But I think it’s worth noting that the kind of growth we have collectively experienced has not treated all parties equally. It might be worth exploring other kinds of growth as well.

People grow in many ways. Children focus on physical growth. The strength and capabilities that come with “growing up” are certainly useful. (Me, I topped out at out at about six feet tall and growing out is… we’ll just say, no longer productive.) Physical growth quickly becomes less important and we move on to emotional and intellectual growth. We grow our capacity for empathy. We grow closer to those around us. We grow wise.

Could business (and even our economy?) aspire to recognize similar limits to physical growth and shift aspirations to another kind of growth?

When we talk about the capital we put together at Community Sourced Capital, we often describe the process of connecting businesses directly to their community as “turning an enterprise’s social capital into financial capital.” The social part looks a lot like trust and strong relationships, and the financial part looks a lot like money. Businesses need financial capital for all sorts of things — including physical growth — and those things change as a business faces new challenges and evolves to fit a dynamic environment. Sometimes, we find businesses looking for growth in terms of product lines or financial maturity. Or, perhaps most exciting, growing in terms of connections to their community. That’s when the social capital part (trust and relationships) comes in.

By sharing a company’s story of growth with its community, and most importantly, by sharing with one’s community an intention for a specific kind of growth, pathways open up for the flow of all kinds of capital: intellectual capital, human capital, social capital. A company that realizes its potential to access all sources of capital will find endless growth.

So, what would you like to grow this year?