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Kiva Zip brings microfinance to Philadelphia

Rose Petals Cafe, after

Peter Merzbacher of Philly Bread

Rose Petals Cafe, after

Kiva Zip

An everything Philly muffin from Philly Bread


A Philly muffin from Philly Bread

You might have heard of kiva.org, the global giant in crowdfunded microloans. Kiva helps entrepreneurs in the developing world attain simple goals such as buying a new sewing machine or adding a second car to a nascent fleet of cabs. Since its launch in 2005, Kiva has lent over $618,809,175 in 180 countries; lenders can give as little as $25 and make a tremendous difference.

$25 seem too stiff for you? How about $5? And how about helping someone in your own backyard rather than (or in addition to) funding a small business across the globe? Enter Kiva Zip, the domestic arm of this global brand and the latest ingredient in Philadelphia's entrepreneurial ecosystem. 

Kiva Zip launched in 2011 in San Francisco. Using its platform, businesses and startups can campaign to raise small loans (initially capped at $5,000) at zero percent interest. As opposed to Kiva loans, which go through microfinance institutions, Kiva Zip funds go directly from lender to borrower via PayPal (a key partner), free of charge. 

"The requirements [for borrowers] are pretty minimal," explains Philadelphia's Kiva Zip Fellow Alyssa Thomas, who works out of the City's Department of Commerce. "We don't check credit. We don't ask for collateral. And we're not taking into account the inherent risk that comes with a lot of small businesses and startups. We are basing loan-worthiness on the character of the business owner."

They determine that character in two ways. The first way is through a "trustee," an organization or community influencer that vouches for the borrower, writing a recommendation detailing their relationship and how they think the loan will impact the business. Secondly, every borrower is required to invite people from their own personal network to lend, though it can be as little as $5. 

"It's not an amount of money, it's the amount of people," explains Thomas. "It's a way of verifying that their own network believes in them. Our data shows that when a borrower has over 10 lenders from their own network, they have a 95 percent repayment rate."

Kiva Zip calls this their 'social underwriting' process. Once borrowers pay back the first loan, they can ask for larger amounts, eventually up to $25,000.

After a campaign gets posted to the site, the borrower has 45 days to get funded. Like with Kickstarter,  it's an all-or-nothing deal -- if borrowers don't hit their goal amount, they get nothing. Payments on the loan can then be made weekly, bi-weekly or monthly. Startups and farmers (including urban farmers, one of the target groups) can have an optional grace period.

The hope is that the availability of these loans will boost small businesses, an essential economic driver in cities. 

"The vast majority of small business owners and budding entrepreneurs cannot access the capital they need to start up or expand," says Sylvie Gallier Howard of the Philadelphia Department of Commerce in an email. "They are denied loans for any number of reasons: the loan amount they seek is too small, their business is too young, their plan is too innovative, or their credit history is too short or damaged."

To date, Kiva Zip has facilitated the funding of 13 loans, injecting a total of $52,000 into the local economy. There is a 100 percent repayment rate. Sixty-four percent of loans have been to ethnic minorities; 45 percent have been to entrepreneurs in their first year of business. And to provide an even bigger boost to the roll-out in Philadelphia, Kiza Zip is offering to match any loan made to a local business on Thursday, October 15.

One of the city's first funded borrowers was Rose Petals Cafe and Lounge, the Germantown eatery housed within Flying Kite's former On The Ground space at 322 W. Chelten Avenue.

For Jania Daniels, who owns the restaurant with her husband Desmin, the loan has been an essential boost, and helped deepen their ties with the community. 

"Now that we've been open a year, we knew we had several areas that we could use additional funds for," says Daniels. "We were able to [add] dinner service, add some additional outside furniture, add lighting to the space -- things we wanted to do but weren't quite able to do without that $5,000 injection."

Rose Petals' trustee is the Department of Commerce -- the relationship formed when the eatery participated in the InStore Program, a forgivable loan program that helps retail, food and creative for-profit and non-profit businesses purchase equipment and materials. Their first 30 lenders were customers or came from within their network. 

"Because it's a crowdfunding program, several of the Kiva funders that were not from the immediate area have come and visited," says Daniels. "We've had a great experience with it so far."

For Peter Merzbacher of Philly Muffin in Olney, it was a neighborhood connection that led him to Kiva Zip.

"There's an organization on my street, The North Fifth Street Revitalization Project [N5SRP], that makes a variety of programs available and accessible to entrepreneurs," he explains. "So, if there's a city program, they'll tell us about it. If there's a grant program or a loan program, they'll tell us about it.

N5SRP became the trustee for Merzbacher's wholesale bakery, which specializes in a "new and improved" english muffin called a "Philly Muffin" -- they're a little larger, naturally fermented and made fresh daily using local grains.

Once fully-funded, he purchased equipment and "a whole lot of flour."

"I had a great experience with Kiva, and I would do it again," says Merzbacher. "A lot of people prefer Kickstarter because it's free money...But if I take Kiva Zip money and pay it back, [those lenders] are more likely to lend it back out. I like that. Now my parents and other friends are lending money to other entrepreneurs."

"[Kiva Zip] is good for the city because it fosters more small businesses," adds Thomas. "A lot of local lenders are funding businesses within their own community. So, we're kind of creating a community of people who are going to be customers to those businesses -- and not just customers, but feel like they have an actual stake in that business."

StartUp PHL has partnered with Flying Kite to uncover why Philadelphia is the right choice for startups and growing companies.

LEE STABERT is managing editor of Flying Kite Media and Keystone Edge. Follow here on Twitter @stabert.

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