Three attorneys have come up with a way for consumers to lend to their favourite small biz and have a real stake in their community. Smallknot connects shoppers with local mum-and-pops in need of a smallish loan using a model that’s part crowdfunding à la Kickstarter and microfinancing used on Kiva.
It’s social lending, but with a twist: Whereas most donations typically end with a check and a handshake, on Smallknot consumers dole out loans which are fully repaid within a time frame agreed upon by Smallknot and the small biz asking for cash.
Even better, participating businesses can sweeten the deal by trotting out fun perks, such as a free wine tasting, cooking class and whatever else the company dreams up.
And to ensure the businesses will make good on repaying the loan, Smallknot pre-screens each company top-to-bottom to get a general sense of their credit standing, cash flow and whether they personally own the business. The latter is a must, co-founder Jay Lee told Your Money, as Smallknot “wants to make sure they have a vested interest in what they’re doing; it provides accountability.”
The idea came at the height of the recession when the lawyers, who relished living in Manhattan’s eclectic East Village, got fed up with seeing their favourite small businesses close down while hum-drum chains continued to flourish.
Knowing banks were wary to lend to small biz, especially in smaller amounts ($5,000 to $10,000), they came up with a clever solution to get consumers and small biz to connect on a meaningful level and work together to build their community.
“As a neighbour, you get to see the money put to work (by using Smallknot),” said Lee. “If you have a favourite restaurant that wants to, say, build a back patio, now you have the chance to see your money bring that to life. You can enjoy the patio tables, and really take part in their projects.”
For now, the site is focused on New York because, as Lee put it, “this is what we know, and where we live.” Smallknot launched on Wednesday, and so far its first business, Egg, a restaurant in the trendy Williamsburg area, has already raised $950 to put toward buying new chairs.
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