If you’re the sort of person who likes to see the neighborhood flourish but doesn’t have the time or energy for starting businesses, here’s another possibility: lending out your money.
Smallknot is a mix between a crowdfunding site, like Kickstarter, and a microfinance service, such as Kiva. It connects local businesses that need cash with local people who want to see their community grow.
To use Smallknot, a restaurant or store posts the amount they are looking for, some information about themselves, and what they need the money for. In return, pledgers get special perks (a gift, or a free service), plus the full loan repayment.
The first business to use the site, which launched this week, is a Williamsburg restaurant called Egg. Egg wants to buy new furniture for its dining room, and is using Smallknot to ask for $10,000. To sweeten the proposition, it is offering recipe prints, cooking lessons, and free dinners. It promises to repay the loan within 15 months.
Smallknot is the creation of three friends, Jay Lee, Ben Rossen, and Jason Punzalan. Until last year, Rossen and Lee were lawyers on Wall Street, where they were more used to dealing in billion-dollar transactions. Now, they want to help businesses get access to the funding they need–something they say is still not easy following the recession.
“The market is still pretty bad for small businesses, despite the news that things are getting better,” says Rossen. “There are still a lot of businesses having trouble getting capital, and there are restricted industries that banks just won’t touch.”
Potentially, though, the site will offer more than just financing. It could be a good way for businesses and customers to connect with one another, enriching both. “One of the things we like about our platform is that it also provides a great way to connect and engage with customers directly,” Rossen adds.
“We find that businesses that don’t necessarily need the money are still really excited about using the platform, because it’s a great way to connect with their community.”
To help along the match-making process, Smallknot carries out due diligence before businesses can advertise. It rates their credit-worthiness, cash-flow, and how involved the owners are in daily operations. Smallknot makes its money by taking a service fee (from the business) based on the total raised.
Lee says several businesses have already said they want to use Smallknot, including a tea-brewing store called Kombucha, and several wine shops and food trucks. To begin with, it will only be available in Brooklyn (of course), though the plan is to expand more widely.