Peer-to-peer loans a viable community finance option, say Slow Money NC founders

FINANCING OUR FOOD: “Conventional farmers strip land and just move to different land. If you only have 2 acres, you’re going to care about them,” said Slow Money co-founder Carol Peppe-Hewitt, explaining that small, sustainable farming operations are imperative to “feeding and clothing all of us for generations to come.” Hewitt and Lyle Estill's nonprofit exists to pair these farmers in need with locals who can offer money, so far having catalyzed about 130 North Carolina-based loans worth more than $1.4 million since 2010. The pair spoke about their work at Asheville's Authentic Communities Summit. Photo by Kat McReynolds

Who better to ask for a business loan than friends? They know your character and believe that you’re likely to pay them back. Plus, friends and loyal customers may already be aware of what’s going on behind the scenes at their favorite businesses. Calling on consumers to “vote with their wallets” in a new way, this grassroots alternative approach to raising capital generated significant excitement at the Authentic Communities Summit, held March 24-27 at New Mountain AVL.

The 3 ½ day conference brought together industry leaders and community business activists to advance local economies, and it convened dozens of breakout sessions. In one of them, titled “Local Food: Finance,” Slow Money NC co-founders Carol Peppe Hewitt and Lyle Estill introduced peer-to-peer loans as a promising solution to the hurdle faced by many promising sustainable-farming businesses: lack of access to money.

After sharing several success stories, the pair told a handful of eager listeners in New Mountain’s upstairs lounge that their Pittsboro-based nonprofit operates in a “gray area” governed by the Securities and Exchange Commission. Since the law allows individuals to lend money to friends who are entrepreneurs, Peppe Hewitt and Estill simply ensure that the right people get to know one another — without ever touching the money themselves.

“What about your community do you really appreciate?” queried Peppe Hewitt. “It could be the person that cuts your hair. Do you know if they’re about to go out of business for lack of $5,000? They can’t ask you for money, but you can ask them how they’re doing.”

In smaller towns like Asheville, borrowers, lenders and both parties’ friends frequently come into contact, and business happenings are relatively transparent. If you want to default on a local loan, “You kind of have to leave town,” Estill explained. “Peer pressure is the glue that holds peer-to-peer lending together. … I would say that Slow Money loans are much lower risk than other things you have in your portfolio.

“But it’s not up to us to decide that,” added Peppe Hewitt. “I screen projects to make sure they are viable and that they’re ready for a loan. In the end, it’s really up to the particular lender [to weigh the risk.]” Many times, she will simply refer businesses to a support center instead of suggesting further capitalization.

Assessing the risk

Both speakers repeatedly emphasized the importance of frank discussion with entrepreneurs about their well-being, putting the onus of responsibility on customers to keep community assets alive and thriving financially.

“You really need to go meet them and check it out for yourself,” said Estill, adding that an early Slow Money lender in Oakland, Calif., actually reported a 100 percent default rate on his San Francisco Bay Area loans.

“The only conclusion we came to is that the Bay Area is massive, and his loans went way over here and way over there,” Estill explained. Peppe Hewitt also felt the lender in question was basing loan decisions on sentiment rather than a sense of the businesses’ potential — a huge mistake in her eyes.

Slow Money NC has a default rate of less than 5 percent, “and that number is declining as we learn and make more loans throughout the state,” she said.

Taking action

Peppe Hewitt and Estill view these on-demand, community-supported loans as the future of small-business financing, but the first step is communicating openly with businesses about what they need. In Slow Money NC’s hometown, for example, supporters will patronize or buy gift certificates from businesses to help them get through a slow winter after hearing that sales are down.

Although Peppe Hewitt and Estill are working to build statewide support for their organization, Slow Money NC doesn’t currently have a dedicated representative in Western North Carolina to bolster the peer-to-peer lending movement locally.

And the increasingly open dialogue that Slow Money is aiming to cultivate across North Carolina can’t come quickly enough, she says. As millennials and Generation X-ers inherit family money, many will want to use their newfound wealth to “do good,” she predicts. So the infrastructure and culture supporting peer-to-peer loans need to be in place before these individuals decide to invest elsewhere — or do nothing at all.

“You don’t need me,” Peppe Hewitt declared, challenging the group to start laying the foundations for peer-to-peer networks themselves once she leaves town.

But then Lee Warren, executive director of the Organic Growers School, piped up, saying, “You bring leadership and confidence [to the project], and we cannot underestimate that. The only way this is going to [catch on] is to have people in your position, so how do we fund that? People aren’t going to have your level of passion as volunteers.”

“This doesn’t take much time or expertise,” Peppe Hewitt replied. “Your goal could be one project every three months, and you could probably finance this in Western North Carolina for $8,000 to $10,000.” She suggested starting small with volunteers and eventually transitioning to paid positions through fundraising or other means. Slow Money NC itself is funded by donations and grants that are channeled through Abundance North Carolina, a 501(c)(3) nonprofit.

“Getting someone who is paid to be a leader is really the solution,” concluded Warren, adding that such a role could fit seamlessly with the Organic Growers School’s mission if such funding became available.

Before dismissing the group, Peppe Hewitt encouraged her listeners to broach the sensitive topic of money within their personal networks regardless of their own financial status or ability to participate in the actual lending process. “You are a leader amongst your friends,” she pointed out, “Whether you know it or not!”

Visit slowmoneync.org to learn more about the nonprofit’s work or to become involved in a local peer-to-peer loan.

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About Kat McReynolds
Kat studied entrepreneurship and music business at the University of Miami and earned her MBA at Appalachian State University. Follow me @katmAVL

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