Smallknot: A New Local Funding Option
By: Susan VanEpps
Coinciding with the growth of alternative sources to traditional bank loans for small business loans, a company composed of “ex-lawyers, developers, designers and dreamers” has recently launched a test program for Loudoun County entrepreneurs. New York-based Smallknot has taken a hyper-local approach to crowdfunding. “You already eat local and shop local. With Smallknot, now you can invest local” says the company.
“We’re taking a company like Kickstarter and putting it right in your neighborhood,” explains Smallknot’s Julia Megson. Components of the program include:
- Any independently owned small business in Loudoun can register online for a fundraising campaign. Businesses are encouraged to register for a specific tangible need, rather than for operating capital. Businesses set a target amount of funds to raise – generally between $2,000 and $10,000 — and are given a timeframe in which to obtain it – usually 30 days.
- In order to receive the funding, a local business needs to raise enough money to hit their funding goal before the set time expires. Smallknot is an “all-or-nothing” funding platform, which means the business has to hit the goal or else they don’t receive any of the funding. Contributor credit cards are not charged until the goal is reached, and all funds are managed and held by an independent financial company.
- The reward structure is unique. Contributors are compensated with the exchange of local goods or services from the company they support, and must receive a value at least 20 percent greater than their contribution.
“It’s like a business taking money from a loyal customer and paying it back with interest,” explains Megson. “Only the owner is paying back at the cost basis of his or her merchandise, which also makes it a great deal for the business.”
- Smallknot staff guide businesses one-on-one. “We’re very hands-on in the entire process, it’s one of those things that sets us apart,” says Megson. “We help with the marketing to your customers. With Groupon and similar sites, a lot of businesses end up losing money from doing a deal, but we guide you to make sure your goal and your pricing is right.” She states that Smallknot’s costs are also less than competition: they receive a 10 percent commission on any successful campaign, and their third party payment processor, Stripe, takes an additional 2.9%. There are no up-front fees.
An additional key benefit to the program is Smallknot’s partnership with Accion, a global nonprofit microloan organization. Companies that successfully reach their Smallknot campaign targets demonstrate a loyal customer base, and the funds raised can be then leveraged though Accion to obtain a microloan. Once established with Accion, the business builds a credit history, which makes traditional bank loans easier to obtain in the future. So far, says Megson, the model is working well, and she encourages Loudoun entrepreneurs to contact her atjulia@smallknot.com.
“It’s amazing how much people rally behind the idea of helping a neighbor’s business,” she said.