We Don't Need You Anymore, Banks
Lately I’ve been finding so many great pieces circulating that examine the worlds that collide with crowdfunding. I’ve used this column to aggregate a lot of the discussions (see even more on my Twitter), because as crowdfunding and the economy shifts together, patterns and trends form that say something about our times.
This week a piece by Julie Hanna and Reid Hoffman called “The World’s Bank: How Crowdfunding is Disrupting Old Banking” jumped out at me. It investigates how crowdfunding is now able to replace traditional bank loans. We meet Teresa Goines as a case study, a former corrections officer in San Francisco who dreams of opening a supper club that would employ at-risk and former gang youth. The only problem is that Goines has no experience opening a restaurant and can’t find a bank willing to give her a loan. Turned down through the traditional system, Goines instead is able to find help from 41 strangers who put their faith and a collective $5,000 in a crowdfunded loan. And it's worth it. Goines pays back the loan, and her popular restaurant, Old Skool Cafe, exceeded the expectations of everyone including the 25 young people it employs and mentors each year.
How many other budding entrepreneurs with worthy causes like Goines do banks turn down? The article goes on to give us the numbers. Right now big banks currently reject more than 8 out of 10 loan applicants, while small banks reject 5 out of 10. The prospects can be frustrating and disheartening, especially in today’s economy where so many of our young people are unemployed or underemployed. So what if we don’t have to play by the rules that have us waiting around, hoping to receive the bank's blessing, talking to nameless, faceless middlemen? Crowdfunding has us turn to our neighbors and other real people who have real emotion and who we can hope to actually inspire. For startups and young entrepreneurs, reliance on banks is no longer required.
Last week I wrote about funding platforms that are exclusive to civic projects and this works in a similar way in that it doesn't require rewards or equity. Another way it's different from traditional bank loans is that they don't have interest. But there is accountability in good faith and when loans are repaid lenders reinvest. Such is the case on the platform Kiva, a non-profit that takes no cut of the proceeds. Through all of these new tools the crowdfunding sector introduces new ways to find necessary capital, re-igniting the hope to create.
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