Access to capital is often a problem for startup entrepreneurs. Among the reasons are:
Lack of credit
Poor credit history
Lack of collateral
Inability to access alternative financial support
Unfavorable financing terms
- Cultural ethics that do not encourage financial risk-taking
Nusenda Credit Union of Albuquerque, New Mexico sought to drive economic mobility in low-income communities by offering a solution to help entrepreneurs overcome business lending barriers. The lending program, aptly named “Co-op Capital”, combines community sponsorship with micro-lending. The relationship of trust between member organisations and their affiliates engenders a creative loan strategy that does not rely on the traditional determinations of creditworthiness.
Community member organisations, such as co-ops, unions, networks and associations, collateralise low-interest loans through their Nusenda Credit Union depository accounts. These entities also undertake the determination of whether the loan is to made to the requestor. The Credit Union takes care of loan origination, while affiliate organisations provide sponsorship and underwriting.
No credit reporting is required. Instead, relationships between affiliates drive not only the decision to extend the loan, but also the responsibility to pay it back. A prime example of how the system operates involves an affiliation between a locally-owned dairy that provides its products to a co-op market. This relationship allows the producer-supplier (the dairy) to acquire funds for expansion from the co-op market, who helps to meet demand for the dairy’s output. The credit union services the loan and provides positive credit reports.
The Co-op Capital effort is a real-world example of community banking providers who have done something interesting to empower financially challenged entrepreneurs to overcome the barriers to business lending.