Crowdfunding has become increasingly popular in recent years. Reward crowdfunding websites like Kickstarter have become a great tool for business owners to raise startup and expansion capital by promising rewards and perks. In the past year or so, we observe that there’s a growing number of platforms that help business owners crowdfund business loans. The basic idea is that business owners would borrow from people in their local community and earn interest and perks. These platforms are still in their infancy, so it’s hard to predict if community sourced loans will be sustainable for the long run. But these are interesting options for business owners to explore. Their cost tends to be lower than other alternative lenders. Here are 4 platforms that help facilitate community sourced business loans.
Pro Tip: Take charge of your financial health today with a FREE Nav account. We'll protect and monitor your personal and business credit, so when it comes time to find financing you're prepared on all fronts.
1. LendSquare. You can set up a loan campaign on LendSquare. LendSquare will underwrite your business and set a maximum interest rate lenders can earn. You can also incentivize the lender by providing further perks. For example, lenders can choose to be paid between 0-15% interest rate for the Harold’s Chicken Shack campaign and the loan will be amortized over 24 months. Harold’s Chicken Shack will give lenders a free bucket of 50 chicken wings if they lend $2,000. This seems to be a pretty sweet deal for both lenders and borrowers.
2. Community Sourced Capital allows business owners to borrow with 0% APR. They are targeting lenders who are philanthropic minded and are willing to lend to their local community without earning interest. The loan is also not amortized over a specific period. Instead, the loan will be paid back through a revenue share agreement, i.e. 5% of the revenue, until the full amount is paid off. They are targeting businesses who are able to generate the revenue to pay back the loans.
3.Bolstr offers revenue share financing to business owners. It’s like 2 but the APR is 20-40%. They allow both local residents and accredited investors to invest your business. The cost is higher but you are more likely to raise a larger amount since investors can get some return.
4. Kiva Zip allows business owners to borrow with 0% APR. They are very similar to 2 but it’s structured as a 0% loan amortized over 1-2 years. Kiva Zip leverages the large number of philanthropic minded lenders from their existing Kiva platform and provides a great communication platform between lenders and borrowers. This is a great option if your objective is not only the capital but also a group of people who can help take your business forward.
Nav thinks the above 4 options are business owner friendly in terms of cost. It’s something worth exploring if your business doesn’t fit into the credit box of a bank or a lower cost alternative lender, which typically requires you to be 2 years in business and profitable.
Nav offers an easy way to keep your whole credit life organized. View your personal and business credit together in one account. Sign up for free.