Small-Business Lender Treats Loyal Customers as Collateral

Called ZipCap, the private loan company enables small businesses to treat loyal customers as collateral — an asset which traditional lenders have never considered viable.

It's tough out there. The competition is fierce and the margins are thin, and if you're starting a new company, it's a real challenge getting the loans needed to launch your ideas into action. While Hillary Clinton said as much during her recent visit to Iowa, in which she declared her intention to make small-business loans more plentiful, one startup is already taking action.

Called ZipCap, the private loan company enables small businesses to treat loyal customers as collateral — an asset that traditional lenders have never considered viable. Here's how it works: A small eatery or shop will ask its patrons to commit to spending a certain amount at their business over a year. Those pledges are then tallied and used by ZipCap to determine what loan amount is appropriate — all at a low interest rate of 3.99 percent annually.

The New York Times reports on one Michigan eatery, Beezy's Cafe, which has signed up 130 customers to commit to spending $475 each over the course of the year. That's a value of $61,750 the restaurant can then use to borrow against. The owner of Beezy's, Ms. Bee Roll, says her customers' response is enthusiastic when she explains the business model:

"When I started explaining the pledge concept, people were like, ‘This is going to help you? Great, I’m in!’ It really makes it clear how vital their support is to us. There’s trust, and an ongoing relationship."

Estimating the number of loyal customers a business has is an optimistic way to value its income, but if the numbers turn out to be true, they could confirm the old business wisdom that keeping loyal customers is more important than creating new ones — because finding new customers is labor- and capital-intensive. 

When it comes to getting into the startup business, it's difficult to know whether you'll like the fast-paced, time-intensive commitment that building a new company requires. To help you know for sure, and to create 100,000 new jobs by 2025, Andrew Yang founded Venture for America, a fellowship program that places top college graduates in startups for two years in low-cost U.S. cities. If you think the startup world may be for you, check it out!

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