January 9, 2017

Talking Small Food Business Loans With Kiva.Org(PODCAST)

Access to capital – finding the money you need to start or grow your business – is one of the most challenging aspects of being a food entrepreneur.  In this podcast, we had the opportunity to talk with Adam Kirk of Kiva.org about that company’s 0%-interest loans and why they’re especially interested in working with food businesses.

TRANSCRIPT:

Jennifer: I’m really excited to kick off our 2017 podcast series with today’s interview with Adam Kirk from Kiva.org. In part, it’s because we will be partnering with Adam and his team at Kiva US for some expert articles on a small food business site, specific to questions around financing and raising capital that food entrepreneurs have. This is a topic that many of you have reached out to me, saying that you want to know more about. We’ll also be hosting a webinar with Adam later this month and information about how to sign up for that will be included in a link on the transcript for this interview that can find on the smallfoodbiz.com website. Lastly, we actually hope to follow up this podcast with a few more podcasts later this year with food entrepreneurs who have used Kiva to grow their businesses.

 

In order for you to understand why I’m so excited about this partnership, let me tell you a little bit more about Kiva. Kiva.org was started in San Francisco in 2005, and has funded over $900 million in loans to 2 million entrepreneurs around the world. The Kiva US branch leverages Kiva’s base of 1.5 million individual lenders to help US based entrepreneurs crowd fund zero interest micro loans. Kiva US loans are up to $10,000. The average loan is funded by over 100 Kiva loaners, contributing as little as $25 each. These lenders can become your brand ambassadors. They can become your future customers. They can support you on an ongoing basis, providing social capital in addition to financial capital.

 

When I was talking to Adam prior to this interview, he mentioned that Kiva US aims to evaluate small business owners character over their credit score. That really stuck out to me, because that’s very different than what a traditional financial institution does. Kiva is committed to making things a little easier for the 28 million entrepreneurs who are creating jobs and economically revitalizing their communities throughout America. That is no small task. I’m going to include a link on the transcript that has Kiva’s website where you can learn about if you’re interested in becoming a lender for as little as $25 or if you’re interested in becoming a borrower. I’ll include links to that so you can find out more. Adam, thank you for joining us.

 

Adam: Hey, thanks for having me, Jennifer.

 

Jennifer: Yeah. I want to start at a high level with this conversation, just in case anybody listening isn’t familiar with the phrase micro financing. Can you break down for us what micro financing loans are and the history of how Kiva got its start.

 

Adam: Sure. Micro finance is the idea that with a very small amount of money, you can make a large impact. It was started out by … The idea was started by Mohammad Yunus of the Grameen Bank. The idea was that they could lend essentially people struggling, people who are below the poverty line, could be lent $100, $200 and that small amount of money would be the difference between success and failure. It would be the thing that could lift them out of poverty.

 

The idea was that the Grameen Bank or other micro finance banks would lend these small amounts of money to essentially the un-bankable population, the people that couldn’t access capital, nobody would lend to them, because it was too risky. These people would get small loans, pay the loans back with interest, and over time, build essentially credit worthiness, where they would be able to access money from traditional systems and kind of build up their lives, so to speak.

 

That’s how Kiva got its start was around this idea of micro finance being one of the keys to poverty alleviation. In 2005, I believe the first loan was to an entrepreneur in Uganda. This loan was several hundred dollars and was paid back over time.

 

The big difference between Kiva and something like Grameen Bank is that Kiva is crowdfunded micro finance. We have this community of a million and a half lenders around the world that you mentioned that is finding different entrepreneurs to lend to on the Kiva website, democratically choosing who they want to fund, essentially sending them $25 and that person that receives the money pays it back over time. It goes back to Kiva lenders. When Kiva lenders have enough money in their accounts, they lend it to somebody else. That’s how this $900 million funding number has been achieved is that we just have so many people that want to support entrepreneurs around the world that they’re continually lending their money, getting repaid, relending. That’s the Kiva model overall.

 

In the US, we take a little bit of a different approach to micro finance. We still think of micro finance as smaller loans, however these loans are not micro in the developing world sense. They’re micro in the US sense. In that we’re lending up to $10K to small businesses. Around the world, Kiva does focus on poverty alleviation. In the US, we focus on access to capital.

 

With the US financial system, it’s very difficult for startup businesses, young businesses, small growing businesses to access the money they need to actually grow, because they’re either too small. They don’t [need 00:05:30] enough capital. They’re deemed too risky by traditional lenders like banks and even credit unions. So when these businesses want to grow, they typically turn to credit cards, to maybe investments from friends and family. They might end up taking risky loans or going to online lenders who charge high interest rates.

 

We want to be an alternative to that. What we do is we offer you, have the seed capital, this up to $10,000 for your business that’s funded by Kiva lenders, so that same micro finance crowdfunding model is applied to entrepreneurship in the US, where these entrepreneurs are gaining money for their businesses, implementing it, investing it in their businesses, to either say build a website or expand production capacity or pay for commercial kitchen space that really allows them to take those first steps into business growth. That’s how we are supporting small businesses. A very long winded answer about micro finance. I hope that kind of hits the key points that you were looking to answer.

 

Jennifer: No, that was wonderful. It brings me to my next question, which is so in the US, I’m going here forward, we’ll talk about Kiva US and the work that you guys do here. What types of things … You mentioned a few things. Are there limitations on what these loans can be used for within the business? Is it only applicable to an entrepreneur who wants to do X? Is it fairly open within the business itself?

 

Adam: I would say it’s fairly open. The only restriction we have is that you use the loan for business purposes.

 

Jennifer: Yeah.

 

Adam: Again, these are loans to really kickstart your business. It’s not restricted to only say investing and production or only investing in a certain aspect. It just has to be for your business. We’ve had businesses use them for all different things, everything from paying for rent in a brick and mortar location or paying for a commercial kitchen or paying for marketing or paying for working capital. All those are encompassed. It’s just that you are investing in your business. You’re showing the Kiva community what you’re doing, why you want their votes, i.e. they’re voting for your business with their money, why you are deserving of their money. That is what really matters.

 

Jennifer: From the crowdfunding end of the angle, what are some reasons that an entrepreneur would want to consider a crowd funded loan, versus the rewards based crowdfunding, which is kind of something that we hear about more often, where the entrepreneurs are going to receive cash in exchange for shipping off their marshmallows or whatever their rewards they’ve set up. Talk about some of the pros or cons of the loan versus rewards based crowdfunding.

 

Adam: There are a couple of reasons why somebody would choose to run a Kiva crowdfunding campaign versus something on say Indigogo or Kickstarter. I don’t think that you should always do a Kiva campaign or you always should do a Kickstarter campaign. In fact, in the rewards crowdfunding, you can get a lot more money. You could get hundreds of thousands of dollars if you have a very successful campaign or even more.

 

The differences are that on reward crowdfunding campaigns, or donation based crowdfunding campaigns, it’s a full time job. You’re really working hard to raise that money. The success rates are much lower on those websites. For example, food businesses on Kiva, when they make it to the Kiva site, there are a few things you need to do beforehand, and I’ll explain those later, but when you make it to the site, you have an over 90% chance of success. Whereas, something like Indiegogo or Kickstarter is much, much lower. That’s a really big difference between the two.

 

Another difference is that on something like Indiegogo or Kickstarter, you’re looking at raising 60 to 80% of your money from your own network. You really need to leverage your connections to make yourself successful. Whereas on Kiva, you do need to leverage your network, and again, I’ll go into that later, however, our community, so essentially people you’re not connected to, are going to be funding 70 to 80% of your loan. You really have the power of the crowd on the Kiva platform, whereas on something like Indiegogo, Kickstarter, it’s really the power of your own network, and hopefully other people will chip in.

 

One last difference between them is that yes, Kickstarter, Indiegogo, you’re either sending back rewards or you’re getting donations. On Kiva, it’s a loan, so you are paying back the money. However, it’s at 0% interest. You are getting money to invest in your business and you’re paying back that principle over up to three years.

 

Jennifer: Okay. That piece that you brought up about the network, that’s a big piece. Certainly, we’ve talked to some crowdfunding experts, who are more focused on the rewards based crowdfunding, that’s an absolutely viable and great way to go and can certainly have a huge success … You can have some great numbers coming out of there, but I know that me, as an entrepreneur, if I’ve ever thought about doing a crowdfunding campaign, it’s been like, well, can I legitimately tap into my friends and family, and actually raise that amount of capital that I’m looking to raise, versus it sounds like with Kiva, you’ve got such a built in network already that in addition to friends and family that are reaching out to … Like you said, you just have a higher rate of success. I think it’s a little less … In my mind, it would be a little less fearful as opposed to hoping to finance $10,000 mainly off of friends and family.

 

Adam: Yeah, absolutely. I think it’s a lot less daunting knowing that you have the support of Kiva’s lending community behind you. Another part of it is that the effort level required to be successful on a Kiva campaign is much lower than other crowdfunding platform, again, because you have the Kiva community behind you.

 

The way we operate is that you need to bring in your own community first to essentially underwrite yourself, to prove to the Kiva community that people believe in you, that have vetted you. You can get say 20 people to lend to you out of 120. You have 100 strangers lending to you, 20 of your network lending to you. Imagine going to your network, and having it flipped, and having asked 100 people you know to lend you your crowdfunding campaign versus 20.

 

For us, it is a lot easier. It’s still daunting. I’m not going to say it’s easy. People, a lot of times, don’t like asking for help. That’s one of the biggest challenges that we on the US team had to face is helping entrepreneurs understand, like look, people want to help. Your network wants to help you. They just need you to ask for their help. They want to be there for you, but you need to be kind of vulnerable. You need to say, “Look. This is why I’m doing it. This is why I need your help.” More often than not, they’re going to turn to you and say, “For sure. Here’s my money.”

 

Jennifer: Just to be clear, working with Kiva US doesn’t exclude you from rewards based crowdfunding or other means to raise capital?

 

Adam: Correct. In fact, we’ve had plenty of businesses raise money on Kiva and then do a successful Kickstarter or vice versa.

 

Jennifer: Okay.

 

Adam: We just want people to get money for their businesses. You know what, if you want to go to Kickstarter, for sure. We will be happy about that. One thing that’s cool with Kiva is that it’s an easier crowdfunding experience, so you get used to it. You get good at it. You can graduate. Why not do a Kickstarter campaign and raise $50,000 to your business?

 

Jennifer: When you’re talking about the micro finance loans, the folks who have a harder time getting capital. It made me think of quite honestly, the food industry, we have a bit of a bad rep when it comes to lending risk. As anybody listening knows, it makes it really hard for food entrepreneurs to get traditional loans. I sometimes joke when I teach in person classes that somehow in the tech world, you can have an idea and get funded off that idea, but in the food world, I mean, for traditional financing, you have to have a pretty long track record before a traditional financial organization will even seriously take a look at you. Adam, as you and I were talking before this interview, Kiva’s actively interested in food entrepreneurs. Why?

 

Adam: I will touch on that really quickly on kind of the bank side of things. Banks are very risk averse. They want to know that their money is going to be repaid. They are going to ask for potentially years of financials. You have to be in business for a very long time. A lot of food businesses are new. You can have a restaurant idea, and need to go on to a new restaurant, or you have a product you’ve been making in your house and you want to sell it. Your friends like it. Why not sell it to strangers?

 

You have all these new businesses. You have all these banks that don’t want to lend to new businesses. That’s where Kiva comes in. Aside from the food part, we love lending to new businesses. It’s because our lender base, our community of over a million people around the world, wants to support entrepreneurs that are trying to do something for themselves, for their families, and for their communities. That’s why they lend. That’s a really big part of why Kiva exists.

 

On the food side of things, the reasons why we like, or love I would even say, food entrepreneurs is two fold. One is that our lender base really loves funding food businesses. Entrepreneurs who have food businesses, either restaurants, caterers, pop-ups, food producers, farmers, they have very high funding rates. The second side of it is that even though these businesses are deemed as “risky” by traditional lenders, what we’ve seen is food businesses have very high repayment rates on Kiva or of Kiva loans.

 

Jennifer: Interesting.

 

Adam: For us, we want to lend to food businesses, because they repay their loans, which allows our lenders to fund more businesses. If we went out and started funding businesses that weren’t repaying their loans, then all of a sudden, we wouldn’t be able to have the impact and be able to grow and be able to fund more entrepreneurs that need to invest in their businesses. Does that make sense?

 

Jennifer: It does. Not only does that make sense, but that’s great news too, that we are pretty solid when it comes to risk factor. That’s wonderful. Now for anybody who’s listening, who’s really interested in looking at Kiva US as a potential means of raising capital for their business, Adam, I’m hoping that you could walk us through a little bit about what it takes. You mentioned earlier some of the kind of steps that it takes before you can basically be on the Kiva platform. Can you just kind of walk us through, as if I were a new entrepreneur approaching you, what needs to happen, what do I need to be prepared to do?

 

Adam: Okay. To start things off, you would fill out an application on our site, which is borrow.kiva.org. It’s an application that you would see kind of a mixture of a formal loan application and a crowdfunding campaign, in that you’re telling us a bit more about your business, how long you’ve been in business for, your annual revenue, also your story. What’s the story of your business? What’s your personal story? Things that people who are going to lend to you will be seeing.

 

One thing that’s very distinct about Kiva is that unlike a bank, we’re not going to ask you to upload your financials. You don’t need documentation to apply for a Kiva loan. It’s all done onsite. In fact, the only thing that you upload is a picture of yourself and your business. You can think about it as helping Kiva understand more about your business on one hand. On the other hand, it’s helping your potential lenders understand you as a business. That’s what happens with the loan application.

 

After that, our team reviews your application. If it’s approved, then you go on to what we call the private fundraising period. This is how we underwrite loans. When other banks will say we need your financials. We need all these documentation. They’ll be very stringent about how they underwrite. For us, we let your network do the underwriting. This is where you bring in say 15 to 25 of your network to lend to you to prove to Kiva and to our lender network, our community that, “Hey, people believe in me. You should believe in me too.” That’s what we call the private fundraising period. You reach out to your family, your friends, your colleagues, your customers to lend that initial seed to you. Once you pass that, you go into the public lenders experience.

 

Jennifer: Sorry. Can I just interrupt for a second. Is there a time period that that happens? Is there a time limit or an average time length that you’d look for that to happen within?

 

Adam: Yes, the private fundraising period is a two week period.

 

Jennifer: Okay.

 

Adam: You have two weeks to bring in people to lend to you. The application itself takes say upwards of an hour, two hours. Review might take a week, because we do have a fairly small team on Kiva US. We review every application in person. It’s not a computer looking at your story. It’s a human being that is reading your story and moving you on to private fundraising. Private fundraising is two weeks. After that, you have 30 days to raise the remainder from the Kiva community.

 

Jennifer: I guess that leads me to two questions. One is that you mentioned, initially, in the application process, talking about revenue for your business. What if you are a true startup? Maybe you were operating under, let’s say for the food world, cottage food laws. Maybe you’ve got a couple thousand dollars in revenue. Is that a concern?

 

Adam: It’s not a concern. What it means is that your initial loan that you would qualify for is probably going to be lower.

 

Jennifer: Okay.

 

Adam: For us, loans are up to 10K. Again, we need to manage risk. Somebody that has been making a cookie. Let’s say they’re a really good cookie. They’ve been making it at home. They might have a little bit of revenue. That’s still telling us like, look. Okay. It’s an unproven model. They want to go out and figure this out. We want to be able to support that and at the same time, we want to be able to manage risk. With a brand new startup like that, what we do is our initial loan amount will be lower. Then once that loan’s repaid, you automatically unlock a higher loan amount.

 

A lot of Kiva borrowers will go through this graduated process, where they fund their businesses one, two, three times on Kiva. Each time, that loan amount gets higher, so that they’re able to get a lot of capital in their business. At the same time, we can manage our risk.

 

The cool thing about Kiva is that once you kind of gone beyond Kiva, or you’re ready to go beyond that next step, thinking about other community organizations that lend $20,000, $50,000, $100,000, we have a lot of connections with those organizations, and we will actually make those introductions.

 

Jennifer: Oh wow. For my last question, we’ve talked a lot about the steps and the logistics, so to speak. Do you have a story that you can share with us about let’s say a food entrepreneur, in particular, who’s worked with Kiva, and a little bit about potentially what their journey was with Kiva?

 

Adam: Yeah. There’s one entrepreneur I’ve met named, Ching Yee. She’s originally from Iowa, moved to San Francisco. She has a business called Sprogs. Sprogs is a I guess you could call it a healthy snack. It’s a multi bite, say two to three bite snack, made of rice and spices, and other tasty inputs. She had limited production capacity. She didn’t have a lot of equipment. She have demand. She couldn’t really meet that demand, because she just wasn’t producing enough.

 

She came to Kiva and borrowed $10,000 to purchase equipment, purchase packaging equipment, that allowed her to expand her production capacity. With that, she was able to move outside of the San Francisco market. She’s on Whole Foods’ shelves right now. She’s beyond San Francisco. She was funded by 66 lenders on the Kiva platform.

 

She’s one of the interesting businesses, where it’s a large loan. I think she had a lot of community support, a lot of support from her customers, because she had people lending larger amounts of money to her, because they just really believed in what she was doing.

 

She actually came to Kiva a few months ago. We had a mini market place where businesses that raised money on Kiva came and talked about their businesses, talked about their stories, and brought some of their products. I tried a few of her snacks and bought a few. They’re really tasty.

 

Ching Yee actually has a story on a site that we built called Kiva US Stories, where it talks more about Sprogs, the snacks they make. They’re called rice scooters. They talk about how she got started, how she heard about Kiva. She was selling at a place called Buy Right Market, which is a very small specialty store in San Francisco. We’ve actually been able to expand.

 

Her page is us.kiva.org/stories/food/chingyeesprogs. Really long name. I wouldn’t worry about going to the whole thing. You can make it easier by just going to us.kiva.org/stories/food, and on that part of the site, you’ll see a lot of stories from food producers about how they leveraged Kiva to invest in their businesses, including Ching Yee’s story.

 

Jennifer: Oh perfect. Again, obviously, for listeners, I’ll include links for all of that in the transcript. Don’t worry that you have to remember it. That sounds like a really interesting story. That piece of moving beyond just your initial market is a huge concern to a lot of food entrepreneurs, of how do you actually grow. It would be interesting to read her story and hear a little bit more about how she did it, with the help of a Kiva loan.

 

Adam: Yeah, absolutely. That’s one of the great things about working at Kiva, and especially on the US team, is that you’re connecting with these entrepreneurs. I’ve met Ching Yee in person. I’ve purchased her product. As a staff member, I’m lucky that I get to talk a lot of people. On the other side, as a lender, I lend to a lot of local businesses. Now I have this connection where not only am I able to invest in them and help them grow their businesses, now I can go in and I know this person. I know their story. I have a much greater connection with local businesses because I’m a lender and because I’ve been able to support them on Kiva.

 

Jennifer: You know that was one thing I was thinking about as we were talking. Obviously, we’re looking at this more from the borrower side, but I was thinking to myself, there’s always this … I think many entrepreneurs want to think about okay, how can we help not just my own business grow, but how can I help other entrepreneurs. The reality is I don’t have $10,000 to give to an entrepreneur. The idea that I can go in and make loans out of $25 or more amount is really appealing to somebody like me, and I think to probably many or our listeners, because you feel like you can help these other businesses in a tangible way, and help them grow their business. That’s really exciting too.

 

Adam: Yeah, absolutely. It’s one of the nice fringe benefits of working here is that I get to be a part of that as well.

 

Jennifer: That’s fantastic. Well, Adam, thank you so much. I know that we will be talking to you again pretty soon for the webinar that we have coming up. Once again, for listeners, I’ll include a link to that. Just really forward to working with you more this year. We’ve got some articles planned that will be going up from Adam and his team that are specific to the financing world. I will say not just specific to Kiva, but for financing in general. I’ll be working with Adam to possibly get one or two or more of some of these food entrepreneurs who have worked on Kiva on two future podcasts as well.

 

Adam: Yeah, I’m looking forward to that very much. Jennifer, thank you very much for having me. I enjoyed discussing Kiva. If anybody has any questions, if they’d like to reach out to me, I’m happy to be in touch. They can reach me at adamk (at) kiva.org.

 

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