When the owners of Cocoa Cinnamon decided to open up a second coffee shop in Durham, North Carolina, they didn’t max out credit cards or take on a high-interest loan from an online lender. Instead, Cocoa Cinnamon turned to a platform called Community Sourced Capital to obtain a no-interest loan — that’s right, zero interest — from those who know the business best.
“You think about small business financing, after 2008 it was a totally different ballgame,” says Leon Grodski de Barrera, co-owner of Cocoa Cinnamon with his wife, Areli. “Banks basically kind of froze up. People had to come up with really innovative ways to get funding, and crowdfunding became one element of that.”
Through CSC’s online crowdfunding platform, small business owners can obtain zero-interest loans ranging from $5,000 to $50,000 and funded by family, friends, customers and community members who want to see the business succeed.
A sign of support
Anyone can participate in funding a loan by buying a “square” for $50; you can buy up to $1,000 worth of squares for each campaign. Loans come with repayment terms of three years or less, although businesses can repay the loans faster without penalty, according to CSC Chief Executive Rachel Maxwell. There’s no guarantee squares will be repaid, so lenders should not contribute more than they can afford to lose.
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Cocoa Cinnamon ended up raising just over $50,000 from 731 supporters in the CSC campaign. The loan covers a portion of the startup’s costs for the second coffee shop and will be repaid over three years.