Transforming Finance with Community Sourced Capital

Community Sourced Capital’s innovative investment model helps small businesses borrow money directly from people in their own communities through an online lending platform that allows businesses to borrow between $5,000 and $50,000. By selling what they call “Squares” or $50 chunks of a larger loan intended for a business in a specific community, the company has been able to provide approximately $600,000 in capital through 38 loans since inception. More than 3,000 individuals have participated in this unique platform by helping to fund loans and, currently, almost one-third of that $600,000 total has already been paid back. It’s an inspiring approach to facilitating local investment and one that is gaining traction. We sat down with Co-founder, Casey Dilloway, to learn more. 

Tell us the story of how Community Sourced Capital started. What was the inspiration behind this idea and at what point did you make the decision to really go for it?

Casey Dilloway: The inspiration was a question: how do we help capital move toward real value? That’s a loaded statement because “real value” can have lots of different interpretations. It was less about how to put our agenda forward in funding businesses we think should exist, and more about opening up the opportunities for businesses to access a new source of funding and people in their community to have a say in whether their money should be part of funding it. It’s built into our motto: “Fund the world you want to live in.”

What benefits (beyond monetary) do people get from investing in their own communities?

CD: There are so many reasons to invest in our own communities, and there is a fair amount of research that shows the positive outcomes from doing so. Increased economic opportunity and increased civic engagement are two fairly obvious benefits of investing in one’s community. The other benefits might take a while to emerge, but that’s the thing with trying to influence a system as big as a financial or economic system: change may not happen overnight. I think anyone working on economic systems understands that. It’s part of our job to help our peers understand that. If we want to see communities thrive in the long run, we have to think of our investments that way, too.

What is one of your favorite success stories to date?

CD: My favorite success story is a loan made to a hotel in Long Beach, Washington. They borrowed about $19,000 from their community to put a solar hot water heater on their roof. They installed the project and repaid the loan within a year. Then they took on a second loan to do solar photovoltaic and 75% of the lenders involved in the first loan came back to help fund the second one. That’s a really cool case of a business accessing something that looks more like a community line of credit. They built a financial relationship with hundreds of people in their community, they took on the responsibility of paying them back, and their community said, “Yes!” to helping finance the business again.

It doesn’t appear that you have to be an accredited investor to participate and become a “Squareholder.” Is this correct and, if so, how does this work with SEC [Securities and Exchange Commission] regulations?

CD: We set out to create something that everyone could participate in, which meant that, given the current SEC regulations, we could not offer formal investment opportunities to the public or generate a financial return for anyone lending money to small businesses. We get to do what we do because we use zero-interest lending, which we think is essentially the act of sharing money.

The regulations that have been put in place by the SEC and other government agencies are designed to protect investors from getting involved in fraudulent investments. However, the cost for a business to prove that it is not fraudulent is really high; the regulations required make it hard to raise small sums of money and probably a lot of investments in small businesses are done offline, unbeknownst to the SEC. When things like Kickstarter came along and started doing fundraising quite literally “online,” it got people thinking about how to make investments “online” as well. I don’t think anyone has it totally figured out yet, and the folks at the SEC aren’t making it easy to figure out either. It’s another one of those big system changes that will take a while to figure out. In the meantime, we’re really happy with the progress we’ve made with our zero-interest model.

You work with startups and small companies all the time. What advice do you have for someone who is thinking of starting his or her own business?

CD: Surround yourself with people who have done something similar and ask them lots of questions. Don’t take advice just because someone gave it to you, but listen and be open to challenging your understanding of your business. At the end of the day, follow your heart. And the more people you can find who see the vision you hold in your heart, the more helpful their advice will become.

What aspect of Community Sourced Capital are you most proud of?

CD: I’m really proud of the conversations we have started around realizing new possibilities for finance. We recently received a Crosscut Courage Award [a Seattle-based award honoring the most courageous citizens in the Northwest]. for business. We’re in a tough industry for innovation, because most of the innovation in the finance industry is focused on making as much money as fast as possible. To challenge that paradigm does take courage, but it’s worth it. I’m not just proud of my team for being part of this courageous company, I’m proud of the community we have grown that is taking a chance on this vision. We’ve been growing a community of banks, credit unions, CDFIs [Community Development Financial Institutions], and thousands of community members who all support us. How great is that?!

Have you seen any patterns regarding the types of companies that are most successful in raising funds through Community Sourced Capital?

CD: Businesses that are engaged in their communities are most successful in accessing capital from their communities. That might mean that they have a brand people know about, or the owners of the business are accessible to the average customer, or the company itself is fun and friendly and people like to frequent it because they feel more alive when they do (hey, I feel more alive at certain coffee shops). These are a few community attributes that make some businesses more capable of asking people to lend them money. But then again, I tend to think that community-oriented businesses are more likely to be successful in general.

What advice do you have regarding leadership and building a cohesive team?

CD: Build a shared vision early on. If you build a team that does not have that shared vision - and by team I mean everyone, including co-workers and investors and partners - then it’s only a matter of time before it becomes an issue that’s large enough to destroy a company (and friendships, too). Leaders can help bring that shared vision out of people, and they hold people accountable if things get off track or if the vision gets too blurry for anyone to see the road ahead.

We try to do this with our small business borrowers, too. We ask, “What’s your vision for your business and does your community see it and share it?” That adds just a little more power behind our motto, “fund the world you want to live in.”



This article appeared in Issue 1 | Winter 2015

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