Foundations Can Now Make Crowdfund Loans to Creative Economy Businesses Thanks to a Novel Approach | PaydayNow

Foundations Can Now Make Crowdfund Loans to Creative Economy Businesses Thanks to a Novel Approach | PaydayNow

Kristina Hale had a lifelong interest in the arts, despite the fact that she did not consider herself an artist. In addition to that, she was a fanatical solver of riddles. But around eight years ago, she began to reflect on what she perceived to be a lack of black representation in the puzzle industry. She came to the conclusion that there were not enough black puzzle designers. After that, she came across the work of a painter whose pieces she believed would form an excellent puzzle.

As a result of this, she had the idea of making puzzles that included the work of people of color artists. She began producing puzzles in limited quantities around the time she turned sixty. The next year, in 2018, she established the Dope Pieces Puzzle Company as a commercial enterprise in Atlanta to market her items. Following the assassination of George Floyd, there was a heightened interest in companies that were owned by people of African descent, which led to a surge in the number of orders received.

But it was difficult to satisfy customers’ needs while also growing to further locations. Then, Hale discovered Honeycomb Credit, a platform for loan crowdsourcing, which had a new effort that linked foundation money to campaigns. Honeycomb Credit had a new program that linked foundation investment to campaigns. In the end, she was able to raise approximately $30,000 from a total of 44 investors, one of which being the Souls Grown Deep Foundation and Community Partnership, which contributed $10,000. Hale is able to say things like, “I’ve been able to acquire puzzles, bring on another staff person, and rebrand.” “This has been a pretty large financial commitment.”

Fund for Participation in Loans

Loan Participation Fund is a brand new program, and Hale is one of the first business owners to take advantage of its offerings. Together with Honeycomb, the nonprofit organization Upstart Co-Lab, which focuses on impact investment in the creative economy, has introduced a platform that makes it possible for institutional investors to take part in crowdfunding campaigns. “When firms raise their minimum goal, that unlocks $10,000 from a participating foundation,” explains Laura Callanan, founding partner of Upstart. “When companies raise their minimum goal, that unlocks $10,000 from a participating foundation.”

There will be a total investment of $600,000 coming from three foundations that are all members of the Upstart community of impact investors. Souls Grown Deep and the A.L. Mailman Family Foundation have decided to make investments in nine southern states that are owned by people of African descent. The Jessie Ball DuPont Fund will prioritize entrepreneurs in seven counties located in Northeast Florida, with a particular emphasis on communities with low incomes, women, and people of color.

Since 2018, the majority of companies that have successfully raised funds using the Honeycomb platform are creative economy firms such as cafes, breweries, and fashion labels. These types of businesses also play vital roles in the economies of their respective local communities. In addition, 46 percent have been in neighborhoods with low to moderate incomes, 49 percent have been owned by women, and 24 percent have been owned by people of color.

The charitable JFC is serving as a mediator between the various foundations as well as providing operational support for those foundations.

A platform for crowdsourced funding of loans

George Cook, the current CEO and co-founder of Honeycomb, began his career in the financial services industry as a consultant. George Cook comes from a family that has owned and operated a small community bank in rural Appalachia for the past 130 years. During that period, he observed large financial institutions acquiring an increasing number of smaller financial institutions, and he worried that this would reduce the amount of capital that was available for loans to small firms like title loans.

The next year, in 2017, he had a conversation with Ken Martin, an owner of an independently owned small company juice shop, about methods to reintroduce more community-oriented financing into the equation for independently owned small businesses. They eventually came up with an idea, which was to create a platform for crowdsourcing loans that would provide people the opportunity to invest in local businesses. According to Cook, “As the company grows and makes payments on the loan, investors know that their money is going to work in the community in which they live.” “And as businesses develop in their own community, investors may benefit from that.” “And as businesses flourish in their own community.”

In 2018, they made their first loan available to customers. To this day, they have collaborated with more than 200 different companies. The platform is able to raise capital for businesses that are unable to obtain loans from traditional financial institutions by utilizing not only Honeycomb’s analytical power but also Cook’s profound awareness of the risks faced by small businesses. On Honeycomb, almost fifty percent of the companies’ applications for SBA or CDFI loans were ultimately denied.

Creating a More Level Playing Field

In the year 2020, Callanan met Cook after learning that the majority of the companies operating on the Honeycomb platform were creative economy initiatives. Cook, as it so happened, had already been investigating ways to encourage institutional investors, particularly place-based foundations, to assist in providing loans to businesses on the platform, particularly those in underserved communities that were having trouble meeting their stretch goals on the platform. Cook’s efforts paid off when a place-based foundation offered a loan to one of Cook’s clients. According to what he has said, “we were looking for a means to level the playing field.”

Callanan, for her part, was aware that many foundations are aware of the positive effects that small businesses can have on communities; yet, these foundations have a large number of practical issues when it comes to screening those businesses and managing their partnerships. Callanan and Cook conceived of a scheme by putting their minds together and working together. Each foundation would issue a single check, deposit the money into an account, and identify the categories of companies that they would like to work with. Honeycomb would then locate, investigate, and vet those businesses, while also assisting those communities in becoming involved. In exchange, Honeycomb would earn a closing fee ranging from 6% to 8% of the total amount of each loan.

Each participating foundation is required to make an initial investment of at least $250,000 and will provide loans of up to $10,000 each to a maximum of 25 businesses. Each campaign needs to meet a minimum target in order to qualify for that money. This is accomplished through the traditional method of crowdfunding, which entails reaching out to consumers and other members of their community, but Honeycomb provides assistance and direction along the process. “The money from the foundation doesn’t truly go to work in the company until the crowd gives it their thumbs up,” adds Callanan. “This is a very important step in the process.” The initial investment came from Souls Grown Deep, and it took place at the beginning of this year. The total amount invested was split among five different companies.

According to Callanan’s research, foundations could anticipate returns of between 8% and 9%, after taking into account the costs of administration. She says, “We believe in the impact of firms getting access to finance, but foundations want to know they’re making a solid investment at the same time.” “We believe in the impact of companies gaining access to capital.”

Irene B. Bowles