As business students at Bainbridge Graduate Institute (now Pinchot), neither of Community Sourced Capital's co-founders had formal finance experience. But through their graduate research, they realized that something was missing: There was no good way for cash-strapped businesses to finance small-scale improvements that would grow their enterprises and add value to their community.
The 2008 recession and the subprime lending fiasco had created more oversight for banks — but also more paperwork, making it harder and harder for banks to rationalize lending small amounts to small businesses. "The trend in small business finance was that banks needed larger and larger loans in order to make sense," explains co-founder and COO Casey Dilloway. "Back in the day, maybe you could get a $20,000 loan from your banker. Now, that looks like $200,000."
“The whole financial system was driving the creation of money, but not value,” co-founder and CEO Rachel Maxwell says.
So Maxwell, 55, and Dilloway, 28, did something slightly revolutionary. They created their own financial system — a platform that helps businesses leverage their own communities to provide zero interest loans, financed in $50 chunks known as Squares.
And Community Sourced Capital didn’t stop there: They also wanted to help strengthen local communities; to create an ecosystem of support for local businesses and community members when things got tough. So their platform encourages Squareholders to reinvest their money as soon as it’s paid back.
"Everyone told us we couldn't possibly do that," says Maxwell.
Luckily, Maxwell was prepared for the naysayers. A former East Coast art dealer, she'd moved to Seattle with her husband in her 30s, when the bottom fell out of the art market. Plans to carry on working were put aside to help homeschool the couple's children through middle school. It wasn't until years later, when a friend offered her a job at REIL, an organization facilitating high-level conversations about climate change, that she got back into the business world. Eventually, she became deputy director.
It wasn't until the failed 2009 Copenhagen talks — "the most depressing meeting ever" — that she began to consider starting her own business. A colleague's comments cut through the defeat of the talk. “Yeah, but there are people out there on the ground doing things," she remembers them saying. "They’re not waiting for us.” That's when the light bulb went on.
At BGI, she met Dilloway, a native of Mauii, whose parents ran their own residential contracting business there. ("I grew up watching small business owners learn how to operate a small business," he quips.) A University of Washington business grad, he helped open Costco's first store in Australia. He was struck by the company's DIY attitude — an observation he took with him when he eventually decamped to the U.S. His plan was to study business and the environment.
Where he landed was somewhere in between. As Community Sourced Capital's COO, he has learned to create an ecology certainly; to make things happen — in the lean times and the flush.
It seems to be working. So far, the company has enlisted 3,000 community lenders, or square-holders, to finance about $450,000 in projects. Those projects have included restaurants, cafes, hotels, salons, manufacturers and online businesses in six different states.
In Seattle, Square-holders helped restauranteur Mike Easton finance Pizzeria Gabbiano, the sister restaurant of handmade pasta darling Il Corvo. They've also financed pastry cases at sandwich shop Delicatus; helped put the finishing touches on NuFlours, a gluten free bakery and allowed outdoor adventure company EverGreen Escapes to finance construction of their team headquarters — among many other projects.
So far, all of their loans have been repaid in full. (You're less likely to default with 200 of your biggest supporters watching.) The other upside of that is the relationship Community Sourced Capital creates between squareholders and debt. "“We’re creating cheerleaders, not debt collectors," says Maxwell.
"The average American could be led to believe that the small business is America's biggest asset. Let's make our financial and economic systems reflect that," Dilloway says.
And Maxwell is quick to point out that $100 in Squares, reinvested over 5 years, will create $450 in value.
“Who’s the courageous one? Is it really us?” Maxwell asks. “Maybe not. It’s those 10,000 people who are buying squares.”