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| Alex Binkley, co-founder of Funding Community |
Funding Community will aim to provide loans of up to $10,000 to small businesses in the New York City area. Lenders can commit $25 to $1,000 to businesses and in return receive interest rates of up to 10% and rewards from the borrowers. Funding Community is a mixture of crowdfunding with social impact. Co-founder Alex Binkley says the idea was in part driven by the increased interest in “locavesting” – a growing trend to invest in projects that will have a positive social impact in a local community – and by the large gap in small-business lending.
Banks rarely lend to small businesses with a history of less than two years, and only 13% of small businesses receive the loan size they request.
One example, says Binkley, would be for a coffee shop to request a loan of $5,000 for a roasting machine, whereby customers could be among the lenders. In addition to receiving an interest rate on the money, customers could receive discounts on coffee.
Binkley says that by encouraging many lenders of smaller increments rather than one big lender, the borrower benefits from greater marketing, and more champions for their business.
Loan terms are for nine months, and companies have three weeks in which to raise the full amount requested or the loan request is cancelled.
Funding Community takes a security interest in the borrower as well as a personal guarantee. It also has a formal due diligence process in which the borrowers are interviewed and financial statements analyzed.
Funding Community launched with four local businesses requesting loans, itself included, with interest rates ranging from 4.9% to 9.7%.
At present the platform only supports borrowers in New York City but Binkley says there is room for expansion.
