This the 2nd in a series of articles jointly written by Kiva and SeattleFoodTruck.com, focusing on business as they are getting started.
Arthur and Rachel are passionate about Southern cuisine.
To share their passion with people around the Bay Area, they founded Drums & Crumbs, a catering company and food truck specialising in Southern fried chicken.
Initially, they catered events such as farmers’ markets and winery parties in the area. But to bring their food to a wider audience and generate more regular income, they decided to start a food truck.
However, the build-out of their food truck took longer than expected. Additional costs, on top of delayed income, started to add up. As their savings dwindled, they realized that without funding, they might not be able to afford to run the truck they had been building for the past several months.
To carry out their growth plan, they needed to raise funds.
For many businesses owners in similar situations to Arthur and Rachel, sudden funding requirements can seem overwhelming.
Securing a loan from traditional sources is often challenging. Particularly as many traditional lenders are risk-averse and evaluate “creditworthiness” based on a narrow set of financial criteria (e.g. credit reports, bank statements, cash flows and collateral). These traditional loans are often out of reach for early-stage small-scale businesses.
Because these entrepreneurs can’t get traditional loans, they turn to alternative sources of capital, like OnDeck and Lending Club, who often times charge 10%, 20% and even 30% interest rates for their loans!
These rates can go even higher for ‘risky’ businesses, and this is where Kiva steps in
“I would encourage any small business owner about to launch a business in food or other industries to look into Kiva as it is a really great way to raise money through your community for working capital.”
As a non-profit, Kiva doesn’t charge any interest or fees on its loans; borrowers need only pay back what they borrowed. While almost all lenders charge interest, Kiva has shown that this model works by lending $15 million to U.S. entrepreneurs over the past five years.
Additionally, Kiva determines small business owners’ creditworthiness primarily through “social underwriting”. This system works by having members of the borrower’s community vouch for the credibility of the borrower directly, by investing at least $25 in their business. This way, Kiva loans are available to good borrowers, who are otherwise excluded from (or charged high rates by) other financial institutions.
In this way, Arthur and Rachel raised $5,000 from Kiva to cover working capital and expenses for their first six months of operation. They shared their story with the Kiva community, and over 120 lenders contributed to their successful fundraising.
When addressing their campaign, Arthur said “Kiva has been very helpful in getting us off the ground…to help us raise some working capital when our truck was being constructed. Since the truck construction has been completed, we’ve been off to a good start, and Kiva has provided a lot of good resources in terms of marketing and financial assistance in getting our business off the ground.”
Kiva also reports repayment rates to Experian, enabling the business to develop its credit score in preparation for future larger loans. When their business is ready for another (potentially larger) loan, entrepreneurs can approach traditional channels equipped with a better credit score, improving their chances to receiving a bank loan.
After a successful round of fundraising, Arthur and Rachel are looking towards expansion. Arthur said he plans to “take advantage of some of the other resources Kiva has in terms of building a broader working capital base to help fund our day-to-day finances and also look towards expansion.”
If you’re interested in learning more about Kiva or applying for a loan, visit borrow.kiva.org or email firstname.lastname@example.org to take your first step in joining thousands of other entrepreneurs who have grown their businesses with Kiva.