This Entrepreneur Is Proving That a Zero-Interest Loan Platform Can Work

By: Michelle Goodman - May 26, 2015
Source: Entrepreneur

Rachel Maxwell’s path to financing entrepreneurs wasn’t an obvious one. Before receiving her MBA in 2012, she worked in international climate policy while running an analytics and market research firm with her husband. But her data-crunching background and interest in sustainable energy soon led her to pursue sustainable business financing solutions for local communities.

“What I figured out was that we really needed a distributed economic system, much like we needed a distributed energy grid,” says Seattle-based Maxwell. A year spent researching the topic led to Community Sourced Capital, a zero-interest crowdfunding platform for community-based ventures. To ensure that future directors, advisors and investors would honor the mission, CSC became a certified B Corporation and a registered Social Purpose Corporation, a Washington state business designation.

“Everybody said to us, ‘No one will do this,’” says Maxwell, who serves as CEO. But she is proving them wrong. “Most of the [lenders] do know and live within a few miles of the businesses they support. What we found is that people will make zero-interest loans if they’re connected to the business or the community that is being improved by the loan.”

Since CSC’s launch in 2013, some 3,700 people have loaned more than $800,000 to U.S. restaurants, breweries, boutique hotels, farms, retailers and manufacturers. The average campaign ranges from $15,000 to $20,000, with most lenders contributing $100. “Ninety percent of the campaigns that run on our site successfully reach their funding goal, which is about 50 percent more than the industry average,” Maxwell says.

Borrowers pay $250 to run a four-week campaign seeking $5,000 to $50,000 on the site. Lenders contribute to campaigns in $50 increments, or “squares.” If a business gets funded, CSC charges the borrower $50 per month throughout the three-year repayment term. There’s no interest involved. Instead, borrowers repay CSC a percentage of their revenue that flexes with their earnings. CSC then passes those payments on to lenders (or “squareholders”). 

CSC’s team vets each campaign posted on the site. Maxwell focuses on whether the amount requested is enough to complete the specified project (say, a new oven or solar panels), whether the business can feasibly repay the loan and whether the business has a community in place to fund the loan. Interested borrowers must share project details, budget and timeline, as well as specifics on their cash flow and how they interact with their community. “We are very hands-on with the businesses we work with,” Maxwell says.

Maxwell hopes to succeed in the Pacific Northwest before marketing CSC nationwide; to that end, she is forming partnerships with local governments and economic development organizations. Craft3, a nonprofit community development lender, is matching CSC loans dollar for dollar in select Oregon and Washington communities; other partners include the Washington State Department of Commerce and Seattle’s Office of Economic Development. “What we are doing is developing relationships and partnerships that will be replicable across the country,” Maxwell says. “But we need to do it in our own backyard first.”

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