In 2005, Kiva, a non-profit based in San Francisco, started lending money to poor people in countries around the globe. Now Kiva Zip, an offshoot of the organization, is using the same crowdfunding model to raise money for zero percent interest loans for people hoping to start small businesses in cities across the United States.
In May, Oakland became the first and only U.S. city to partner with Kiva Zip, with the goal of supporting entrepreneurs who might not otherwise be able to get a loan.
Senior Deputy Attorney Kiran Jain, who proposed the idea, says the partnership will help the city and its entrepreneurs by creating a very “efficient platform for raising funds and investing in human capital.” First time Kiva Zip borrowers can take out a loan for a maximum of $5,000. If they repay it within 24 months, they are eligible for consecutive loans amounting to as much as $50,000.
In order to qualify for a Kiva Zip loan, the candidate must find someone to vouch for them. A “trustee,” the term Kiva Zip uses, can be anyone: an individual, a small business development service, a church organization, or even a city government. In Oakland, there are seven active trustees, including Centro Community Partners, a business development agency, and Pastor Josh McPaul. A trustee vouches for the borrower’s character and also assists them during the development stage of the business. The trustee is not financially liable if the borrower fails to pay back their loan.
Jason Riggs, spokesperson for Kiva Zip, notes that many small-business owners don’t have the option of using a traditional lender, either because they don’t have the collateral required by commercial banks or because their credit history is too short or damaged, or because they are too young. This has been especially true since the economic crisis hit in 2007 and smaller loans began to dry up, Riggs says.
“Kiva recognized that there was a need for economic opportunity in our own back yard,” he adds.
Sa far, Oakland has 14 Kiva Zip borrowers who have received their first loan of either $2,500 or $5,000. Two of those borrowers have paid back their first loan and have applied for a second larger loan. Carlos Barrera, owner of El Rinconcito Chapin, a Guatemalan restaurant in Oakland, used his $5,000 loan from Kiva Zip to invest in more traditional ingredients. Dustin Page, owner of Platinum Dirt, designs and sells up-cycled leather products. He invested his second Kiva Zip loan of $10,000 in a sewing machine.
Feleciai Favroth, the owner of a skin care business in Oakland, is currently fundraising for her second loan of $15,000. In two weeks, two hundred people have collectively loaned her over $7,000. With the money, she plans to increase production by purchasing more molds and racks and keeping her assistant employed.
A former real estate broker, Favroth started making soaps in her house in 2008 and eventually moved her production into studio space in West Oakland. She says the business of making soaps is much more suited to her character than the competitive and volatile nature of the real estate market. “The goal is to expand my business, at least enough for it to support me,” Favroth adds.
To qualify for a loan, applicants must have an annual income below $100,000, and a sound business plan, as determined by Kiva Zip and their trustee. Once a candidate is approved, the money for their loan is raised through a crowdfunding platform. Would-be lenders can browse profiles posted by borrowers on Kiva Zip’s website and select the individual business they want to lend to. When the borrower pays the loan back, he or she can choose to reinvest their money in a different borrower or withdraw their money.
Aliza Gallo, the Business Development Service Coordinator for the City of Oakland, said she hopes the lending program will boost the number of small businesses opening in Oakland. Her goal is to reach out to the 20-plus non-profits, financial institutions and community organizations that work with small businesses in Oakland and encourage them to become Kiva Zip trustees. If each agency can recommend three borrowers, Gallo says, soon “Oakland could be the home of 80 new small businesses.”