A new source of funds:

social lending

Does your small business need money for inventory, growth, or unexpectedly expenses?  If so, you may have tried to get a bank loan without success.  Today’s economy has made traditional loan sources increasingly difficult to find, leading many shopkeepers to use high-interest credit cards as a last-ditch source of credit.

Because I empathize with my fellow business-owners caught in this bind, I found Elizabeth Gilbert’s recent column on Organic Lending in O Magazine very moving.  You may have heard of Gilbert thanks to her best-selling memoir, Eat, Pray, Love — or her more recent examination of marriage in the book Committed.

It turns out that Gilbert is also quite committed to the idea of helping small business survive and thrive, and she is encouraging others to do what she does: “take my money out of the bank and fold it, instead, into my community.” 

She has invested her money in local women-owned businesses including a coffee shop, a Pilates studio and two gift shops.  The interest on these loans, while only half what the entrepreneurs would have paid to a commercial lender, is still considerably higher than what Gilbert would have made had she kept her money in the bank.

These loans are not charity, she points out, although of course there is the risk that she may not be paid back. Gilbert gave the entrepreneurs a grace period of a year before she requires that she be paid back.  But it is important to note that aside from that she has set up the loans in a business-like manner, using one of several inexpensive or free social lending programs available online.

The first is offered by Virgin Money U.S. (yes, the airlines and cellphone people) in order to encourage social loans.  As they say on their web site, “Social Lending gives friends and family a more structured way to lend or borrow money with each other. Essentially, we provide a simple way to structure a social loan to help keep friendships exactly as they should be—friendly.”

Another site that can help you with social lending is LoanBack, which provides repayment schedules and a downloadable contract that can be notarized and signed. Although these products are not free, their low cost ($15 to $30) is a small price to pay to get an infusion of capital from someone who wants to invest in your success. 

Social media, peer business groups and word-of-mouth are great ways to spread the word that you would welcome such an investment.  Be sure to have a clear idea of how much you will need, what you will use the money for, and how you will pay it back.  By emphasizing the importance of your locally-owned business to your community, you may catch the imagination of someone wanting to do just what Elizabeth Gilbert has done — help revive the economy through personal loans.

Happy Retailing,

Carol “Orange” Schroeder