Microfinance Meets Crowdfunding
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At Accion, we're committed to bringing affordable microfinance solutions to small business owners who need them. We're an organization with a nationwide reach that has helped thousands of small business owners grow and thrive. A recognized leader in U.S. microfinance, we help small business owners use microloans to build their businesses. We are part of the U.S. ACCION Network, the largest domestic microlending network, with over $272 million lent since inception in 1991. About the Accion/Smallknot Partnership Accion and Smallknot have partnered to create a revolutionary co-funding product that brings microlending and crowfunding together to provide a new funding alternative for small business owners. This partnership helps small businesses leverage crowdfunded capital on Smallknot to get access to loans from Accion and helps increase visibility of the business' campaign. How It works Small business owners apply for a microloan through Accion (loan requirements)and are prequalified for loans ranging from $500-$50,000 (average size $8,000). In order to improve and grow credit history and grow the visibility of the business, small businesses create a crowdfunding campaign on Smallknot and use the money raised to guarantee a larger loan with Accion. Once the Smallknot campaign has been created, Accion, the small business owner, and Smallknot promote the campaign. When the goal is reached, all or a portion of the money raised on Smallknot is sent to Accion who then disburses a larger loan to the small business owner. Once the loan is paid in full, Accion returns the cash collateral (money raised on Smallknot) to the business owner who uses it to continue to invest in the business. Why the Smallknot/Accion co-funding program? Co-funding with Accion/Smallknot helps build your credit history which is very important for small business owners who are trying to grow their business and eventually access higher amounts of capital. In addition to the business owner and Smallknot, Accion helps bring more visibility to the campaign on Smallknot increasing the chances of funding success and ultimately raising the visibility of the business itself. Once the loan is paid in full, the business owner has a cash cushion that can be used to further invest in the business.
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Microfinance Meets Crowdfunding
- 1. Boost Your Business with a New Kind of Localized Funding Erica Dorn Community Development Manager, Accion Ben Rossen Co-Founder & COO, Smallknot October 4th, 2012
- 2. Agenda • Introductions • Who are Accion and Smallknot • Funding Products • How to Prepare for a loan and for a crowdfunding campaign • Group introductions • Growing your business • Questions
- 4. Why Accion? • Limited credit history • Informal financial documentation • Small capital needs • High risk industries "I wanted to create a welcoming space for • Under two years in business all," says Lyn, who began the studio with the help of her first ACCION USA small business loan two years ago. The • Flexible, community-based lender business became profitable one year after opening and grew to employ twelve part- • Cater to home-based business time employees. "Just as important," she continues, "I wanted to create work for myself that was fulfilling.“ - Lyn Genet Recitas, owner of Neighborhood Holistic in Harlem
- 5. Who do we lend to? 20% African American
- 6. An overview of the credit continuum *Credit cards, Microloans and Bank Loans build a credit history. Equity and Investments Bank SBA Loans ACCION MICROLOANS Credit Cards Friends & Family Crowdfunding PersonalSavings Equity Jesse, recipient of the Sprout Loan at ACCION, owner of Brooklyn Taco. Manhattan, NY Jason, Accion client and owner of a home-based soap company
- 7. Products andand Programs Products Programs Product Definition Established Businesses Up to $50k (> 6 months) Emerging Businesses Up to $30K with outside cosigner (> 6 months but not yet profitable) Sprout Loan Home-based/incubator up to $5-*10K without (< 6 months) cosigner
- 8. Basic Loan Requirements • Registered business owner • Credit Score over 525 (FICO) • No more than $3,000 in past due debt* • No Bankruptcy in the last year • No Foreclosure in the last 2 years • No late payments on mortgage and rent in the last year Natasha, Accion client and owner of Natasha Wozniak Jewelry. Brooklyn, NY *Except The Sprout Loan, which cannot exceed $500
- 9. What is Smallknot? Smallknot is a crowdfunding platform that allows anyone to fund a local businesses in exchange for in-kind returns like goods, services and special benefits.
- 10. Option 1: Raise Funding
- 11. Option 2: Build a Crowd
- 12. Benefits of Using Smallknot • Inexpensive access to extra capital • Build real customer loyalty and get word-of-mouth marketing • In-kind rewards at a premium offer real value to customers • Improve and connect with your community • Keep money local • We make it easy to activate your networks SHARETHELOVE! RE IVERE CE TURNS Keep the great INVEST , free Receive discounts FINDA CAMPAIGN Invest some cash to help perks businesses in your your products , and insider neighborhood thriving ! Support one of your favorite local business es and experiences. favorite local business expand and grow. on smallkno t.com. not.com not.com | info@smallk L earn M ore at s mallk
- 14. Accion/ Small Knot Partnership Build your credit history (bridge to accessing higher amounts of capital) Increase the visibility of your business Create a cash cushion for future investment into your business
- 16. The Accion/ Small Knot Partnership First Accion/ Small Knot Partnership: A7 Brooklyn | NY Hand crafted leather camera straps, made with care in Brooklyn. Amount invested: $8,110 of $7,500
- 17. Affordable Loans • Loan process: 5 to 10 business days* plus 30 days to raise on Smallknot • Terms up to 60 months • Optional auto payments • Interest fixed rates: start at 8.99% average 11.99% • 3-5% closing fee • No prepayment penalties • Payments applied to principle and interest *Once all documents are collected
- 18. How to Prepare for a Loan
- 19. Credit Today: Scoring Systems New Credit Payment History Amounts Owed Length of Credit History Types of Credit Used FICO is still the most widely used system among lenders. Scores range from 300 to 850.
- 20. Key Strategies for Managing Credit Key Strategies for Managing Credit • Pay on time • Keep a healthy percentage of available revolving credit • Diversify your trade lines • Pay credit cards down one by one • Be proactive in calling your creditors • Check credit reports annually for errors at www.annualcreditreport.com • Use www.myfico.com to see a copy of your FICO credit score
- 21. Things to Consider: Coverage for a Loan Payment • Can your business afford the loan payments? • Is net income greater than 2x the loan payment? • Can you afford to pay yourself and cover your personal expenses?
- 22. How much would my monthly payment be? Principal $2,000 $5,000 $10,000 $20,000 Portion Loan Total $2,130 $5,280 $10,610 $20,910 (including closing fee & UCC fee) Term 12 24 30 40 Monthly 0.75 0.75 0.75 0.75 Interest Rate Monthly $186 $241 $396 $607 Payment
- 23. Things to Consider: Bank Statements • Are deposits greater than withdrawals? • Are there Insufficient Funds Fees (NSFs)? • Are the balances declining or increasing over time? • What are the frequent expenses?
- 24. Example of your bank statement analysis Sample Personal Bank account analysis:
- 26. More Than a Loan • One-on-one: We provide coaching throughout the loan process on credit, cash flow and record keeping • Online: Free webinars and a monthly newsletter help create meaningful connections with our clients • Partnerships: We team up with other organizations to leverage resources and maximize strengths
- 27. Have More Questions? Contact Accion: Erica Dorn, Community Development Manager edorn@accionusa.org 646-833-4533 Contact Small Knot: Ben Rossen , Chief Operating Officer Ben@smallknot.com 646-552-4654
Hinweis der Redaktion
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- ACCION USA ’s clients range from small home-based entrepreneurs to established storefront business owners Although ACCION USA provides credit without discrimination to everyone who meets our lending criteria, we specialize in working with those who most often lack access to credit-women, immigrant, and minority business owners: 89% repayment rate organization-wide 38% women 70% Minority 35% home-based Major industries include: transportation, food and beverage, professional services, beauty salons, retail sales, wholesale, media, communications & entertainment, education Number % Industry 207 14% Transport 200 14% food/bev 148 10% Prof Services 118 8% retail stores 103 7% beauty salon services 102 7% Retail sales 97 7% other services 96 7% construction/repair 87 6% Clothing/Material Prod 53 4% Wholesale 49 3% medical services 44 3% arts/crafts production 38 3% entertainment 29 2% media 24 2% jewelry 20 1% electronics 15 1% Cleaning 11 1% education 10 1% telecommunications 1451 100% Total Active of Known Industry
- Which of these help build personal credit? - What are the average bank rates? The loan rate for small businesses is based on the market rate for loans and is fundamentally related to the long-term federal borrowing rate. In early 2011, this long-term rate was at a low of about 4 percent, versus a 7.5 percent historical average. Due to the riskiness of small business loans, their rate is always several points above the long-term rate. According to the Federal Reserve, the average in early 2011 for small business loans was 8.4 percent for loans less than $100,000 and 7.6 percent for loans between $100,000 and $1 million. Peer to Peer (7-30%) Read more here: http://www.businessmoneytoday.com/articles-advice/2011/Peer-to-Peer-Loans-For-Small-Business.html loan sharks have been quoted by news sources as high as 300 - 600% APR, and pawn shops not being much better. - While credit cards are a good options for short term debt, with fees and rates that can push close to 30%, microloans are a better option for growing small businesses
- Start-up and Transition Reqs 6 or more months of business revenue (for storefront locations only) Financially independent co-signer 2 nd source of income from client or household member A market study and 12-months of financial projections (ACCION Templates Provided) Technical expertise and commitment to the business All required licenses and permits
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- A credit score is a quick way to assess your credit-worthiness (should you get a loan or not?) While credit scores are important, remember that the information included in the credit report is what is most important . Scores will fluctuate up and down over time. The FICO score (which stands for Fair Isaac Corporation) is still the most widely used by lenders as a minimum cut off point to consider your application for financing. Depending on the bank, this minimum may range from 650 – 750, generally speaking. ACCION ’s minimum FICO requirement is 575. The pie graph shows the following factors that affect your credit score. Payment History (35% of score)- this is the most important piece of your score. If you have late payments your score will drop dramatically. Always pay on time! Amounts Owed (30% of score)- this refers to the amount of available credit you have. You always want to try to have 65% available credit (meaning that you do not carry a balance that is over 35% of your limit). Your score drops dramatically if you are at the limit on all of your accounts (if you have used all your credit). Length of Credit History (15% of score)- the longer you have had a history, the better your score will be (taking into account the other pieces of the pie). Rule of thumb- never close your oldest account because you built your history with this account. Also don ’t close the account you use all the time because this is also what you are currently using to build your credit history. Types of Credit Used (10% of score)- important to use multiple types of credit- both revolving and installment- shows that you can manage different types of credit. New Credit (10% of score)- opening too many accounts at once can hurt your score- it looks like you are in desperate need of credit and money. A new scoring model called VantageScore has been gaining momentum. VantageScore was created by the three major credit bureaus as an alternative to the FICO score. VantageScore credit scores run on a scale of 510 to 990 and offer a corresponding letter grade. Be Aware of this difference in scoring, as you might be receiving a 700 Vantage Score, which is more equivalent to high 500s/low 600s in FICO terms. VantageScore takes into account multiple aspects of your credit history, but weighs them differently than a FICO score does. Business credit reports and credit scores are completely separate from your personal credit report and credit scores. A business credit report is specific to a business's debt repayment and public records, such as bankruptcies or tax liens. You can start building your business credit by establishing your business as a separate entity, to separate your business credit profile from your personal credit profile (LLC or Corporation). As a small-business owner, personal credit is almost always considered when evaluating your ability to qualify for financing (even if in conjunction with a business credit profile).
- -Pay on time: Make sure to mark your calendar and always pay your credit card bills on time. Don't let yourself fall 60 days or more behind because many of the protections afforded by the new CARD ACT will not apply. If you can't make a payment, call your credit card company and ask for a hardship arrangement. -Keep a healthy percentage of available credit: A healthy percentage is usually defined as between 40 – 70%. Try to keep balances below 35% of your total credit limit. Make an extra effort to pay down existing balances by paying more than the minimum every month. -Diversify your trade lines: I t is important to have both installment credit (loan) and revolving credit (credit cards) to build a strong credit history. Showing that you can manage both types of credit will strengthen an application for business financing. -Pay down credit cards one by one. First, make a list of all your accounts, including the balance and interest rate. Several participants may have questions about how to go about determining which card to pay off first. Emphasize two points: Note the varying interest rates on your credit cards, and start paying off the card with the highest interest rate first. -Pay down balances on accounts that are the least late (your recent debt). What happens today has more of an impact on your credit score than what happened a year ago . - Be proactive in calling your creditors! If you are having difficulty in keeping up with payments, or have had a recent change in your interest rate, call your creditor to negotiate a reasonable payment plan or a lower interest rate. As of August 2010, credit card issuers must reevaluate interest rate increases due to changes in your credit risk or market condition every six months. If you have been paying well for a year, call and try to get your interest rate decreased.
- When you apply for a business term loan, lenders will look for what they call debt service coverage. What this means is how much, at the end of the month, you can afford putting toward a loan payment. ACCION offers installment loans, which carry fixed monthly payments of principle and interest. At the end of the day, ACCION will look to see that your net income is at least 2 times the amount of the projected monthly loan payment. Your business net income can be defined as your sales minus your cost of sales (of goods sold), and other expenses. ACCION will do a global cash flow analysis, taking into account both your business and personal income and expenses to determine your coverage for a monthly loan payment.
- One of the ways that ACCION assesses cash flow available for loan coverage is through your three most recent business and personal bank statements. Therefore, it ’s important to maintain healthy bank statements. While insufficient fund fees are not a disqualifier, they may weaken your application. Make an effort to deposit all of your sales and withdraw your regular expenses from your business checking account so that a lender can notice trends.
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