Web-based crowdfunding sources such as Kickstarter, Kiva and Prosper are increasingly playing the role of financier to startup small businesses and solo operators, at a time when traditional lenders are carefully weighing the risks in their portfolios.
“Most banks are just not able to make the numbers work for the smaller loans under $50,000 — based on the expenses, risks and other factors,” said Premal Shah, president of San Francisco-based Kiva. “That’s where we are able to fill in the gap.”
Since its 2005 start, the nonprofit Kiva has brought 750,000 lenders together with more than 800,000 borrowers, via a Web-based microfinancing platform in which people around the world can make their case for loans of as little as $25. Shah said Kiva loans have a repayment rate of 98 percent.
In September, Kiva joined with Accion San Diego, a local nonprofit micro-lender that helps entrepreneurs who otherwise are unable to obtain traditional financing. So far, the local effort has helped 15 businesses obtain loans, including a Vista machinery business that received $3,000 to buy a long-needed company truck, and other entrepreneurs who obtained infusions ranging from $1,500 to $10,000 to market their businesses or purchase needed inventory.
“We agreed with both of the U.S. presidential candidates that small businesses are the backbone of the economy, so this is helping to support those businesses,” Shah said.
For Donors, Not Just Lenders
New York-based Kickstarter has taken the micro approach to the project level, with a platform that allows creators of games, art, films and technology to obtain small, non-loan pledges to finance their work.
“It’s kind of like the intersection of commerce and patronage,” said Kickstarter spokesman Justin Kazmark. “The focus with us is very much with projects, as opposed to businesses.”
Kazmark said creators throughout the U.S. and United Kingdom are now able to obtain support for their work from donors throughout the world. “The range of the projects is one to 60 days, but many people typically set a timeframe of 30 days.”
Since its 2009 debut, Kickstarter has brought 60,000 creators together with more than 3 million project backers. Operators said more than $400 million has been pledged for more than 30,000 creative projects.
In San Diego, Kickstarter has helped local entrepreneur Chris Flynn obtain more than $16,000 in pledges from 200 backers to support development of Nori Lights, a bicycle tire illumination system. More than 1,300 people have made more than $146,000 in pledges to Catt White and Dale Steele, who are aiming to develop their San Diego Public Market in downtown San Diego along the lines of Seattle’s Pike Place farmers market.
Kickstarter representatives also point to the more than 2,000 people pledging more than $200,000 to the local developers of L8 Smartlights, a Bluetooth-enabled speaker system for smartphones and computers.
Supporting the Individual
San Francisco-based Prosper, which started in 2006, is a peer-to-peer platform where borrowers post profiles, as well as the amount and purpose of their requested loans, which are reviewed by private-party lenders. Borrowers make fixed monthly payments based on agreed-upon interest rates, and investors receive a portion of those payments directly through their Prosper accounts.
Parent firm Prosper Marketplace Inc. says the service since inception has facilitated the funding of more than $314 million in peer-to-peer consumer loans.
Prosper spokeswoman Sarah Cain said the platform has enabled nearly 80 loans in San Diego County, to small-business owners in areas such as photography, wine bars and other entrepreneurial ventures.
“It’s important to note that we do not underwrite businesses, but rather individuals,” Cain said in an email. “About 10 percent of our loans are used for small business purposes by individuals. A big portion of people also come to us for debt consolidation.”