Need to raise money for your small business? As of this month, local small business owners can apply to the City of Oakland for endorsements they can post on global crowdfunding resource Kiva‘s new online platform, so they can get their own crowdfunded small business loan.
The City approved a proposal in May to become a trustee of the Kiva Zip program. Oakland’s is the first city government to participate in the “alpha” version of Kiva’s online microfinance service. The program joins Kiva’s trademark micro-lending services with the power of crowdsourcing. The City’s status as a trustee of the program means that the City government can select up to three businesses at a time to endorse on the Kiva Zip online platform where they can ask donors for loans.
How did this come about? It started with one person, Kiran Jain of the City Attorney’s Office. According to Jain, her previous experiences using Kiva’s online platform to support entrepreneurs in developing countries sparked the idea to forge such connections in her own community.
“We needed to rethink how we’re providing services,” she said, explaining how the cash-strapped City government came to embrace the partnership with Kiva, despite the fact that “crowdfunding and bureaucracy don’t necessarily go together. Kiva Zip’s trustee model is a good fit for us, because it allows the City to facilitate connections that can help build a community of support for local entrepreneurs,” she added.
Initially, borrowers can take out crowdsourced loans of up to $5,000 at 0% interest, with a repayment period between 10 and 24 months. Once the first three borrowers have made a year’s worth of payments, the City can then select two more businesses to endorse on the site, and increase the maximum amount of the loan to $10,000. Each following year, the number of borrowers and amount of funds the City can endorse will grow.
Jason Riggs of Kiva identified lack of awareness as a major challenge of microlending to small businesses in the U.S. Moreover, small business lending is increasingly difficult to secure, especially for startups and unconventional businesses that may seem riskier to traditional lenders. “The trustee model is key to scaling microfunding in the American market,” he said.
The core aim of the program is to serve financially excluded entrepreneurs who are also working to strengthen their own communities. In this way, Kiva Zip is an experiment in social underwriting — rather than cash flow or credit underwriting — to determine credit-readiness.
First, entrepreneurs can visit the City’s Business Assistance Center to complete the self-assessment tool in order to determine whether the program would fit their needs. If so, they may apply to become candidates for endorsement. The application can be found on the fourth page of this program summary document. From that point, both the City and Kiva will perform a basic due diligence process.
On the City’s side, the Alameda County Small Business Development Corporation, whose offices are located in the Oakland Chamber of Commerce, will provide oversight of the applications. A roundtable of city officials, including Kiran Jain, Aliza Gallo, Economic Development Manager at the Department of Economic and Workforce Development, Juno Thomas of Oakland’s Business Assistance Center (BAC), and Kelley Kahn, Director of Economic and Workforce Development, will make the final decisions.
Kiva will run a social media and professional network scan to establish the social history of the potential borrower. Additionally, a third party will run a public records check.
Ultimately, the most important factors in the decision-making process are that the candidate is financially excluded, particularly from traditional lines of credit, and values contributing to the community. It is important to note that borrowers cannot be in significant debt, bankruptcy, or foreclosure when applying.
Aside from assessing the business plan and credit history, evaluators will look at the social and economic needs of each potential borrower. Applicants are encouraged to make sure their social media presences are up-to-date and content-rich, or that their names are known and respected in their communities, to have strong applications.
One of the most beneficial aspects of the program is that it is “relational rather than transactional,” Riggs said. Jain advised borrowers to leverage their relationships with their lenders for more than just cash resources. Some recipients of Zip loans have been able to get specialized consulting and support from their lenders pro bono. Additionally, Thomas said the BAC will use its network in the local business community to provide technical assistance to borrowers throughout the loan period.
With this new partnership, Riggs and Jain hope to build awareness among small business owners and budding entrepreneurs, as well as create a catalyst for others to become trustees or borrowers. Other current Oakland-based Kiva Zip trustees include Brown Boi Project, Oakland City Church, Native American Health Center and Centro Community Partners.
Want to support a local entrepreneur? Visit https://zip.kiva.org/ to learn how you can contribute.