Kirsten Dickerson knew her company could change lives.
Marginalized women around the world — war and slavery refugees, the formerly homeless, the HIV positive — struggle to find stable income and avoid poverty. In 2011, Dickerson launched Raven + Lily, an ethical fashion and lifestyle brand, to produce beautiful goods and give secure jobs to these at-risk women.
It worked: Her B Corporation now employs over 1,000 at-risk women in eight countries, including Ethiopia, India and Cambodia. What Dickerson didn’t expect was the difficulty of being understood by banks and obtaining loans needed to fulfill her mission.
Dickerson’s team in Austin, Texas, designs clothes, jewelry, bags and other goods. They pay fair wages to the at-risk women, who bring their designs to life using local, eco-friendly materials.
“Our collections we sell are exclusive designs we design in-house in Austin, and they reflect the beauty and the culture of the women who make them, but they’re still modern and fashion forward,” Dickerson says.
After enjoying national success from her retail website and landing items in over 300 boutiques, she opened a flagship storefront in Austin. Last year, Dickerson took Raven + Lily through a small round of series A fundraising to gain investors without giving away significant ownership.
The next step for her was to get a loan while she proved that Raven + Lily could grow fast enough to meet the demand she knew was out there. Doing that would pave the way for a series B round at a higher valuation.
“I wanted to buy some time to prove how we were doing, and I needed additional income to help us meet growth needs and demands,” she says.
But she struggled to get approved for a loan from traditional banks — even local banks. “I found that local banks were moved by my story, but had too much red tape to support a company that was still at an early stage and functioning outside of the norm,” she says.
Banks didn’t fully understand her business model as a B Corporation or her fair-trade buying and ordering cycles.
A new loan option using crowdfunding
That’s when a mentor pointed Dickerson to Able Lending, an Austin-based business that began making loans to small businesses around six months ago. It was founded by Will Davis and Evan Baehr, who noticed that a lot of local small businesses that needed capital to grow were being turned down by traditional lenders.
“We have great friends that built apparel companies, restaurants, jewelry companies and services firms,” Baehr says. “They’re awesome businesses, and we’d be at dinner conversations with them — here we are talking about how we’re raising millions of dollars for our company, and they can’t get $100,000 to build out their new store or buy inventory.”
Baehr found that consolidation of the financial industry and a slow recovery from the recession made it difficult for many entrepreneurs to access loans. “We needed a company that built a different way to lend money to the people the banks deemed not creditworthy,” he says.
Raven + Lily’s storefront in Austin.
Baehr was inspired by the microfinance model and wanted to try something similar to Kiva, but for U.S. businesses and on a larger scale. They launched Able, and so far have funded $5 million of business.
Able provides loans between $25,000 and $250,000 to incorporated, cash-flow-positive businesses — currently only in Austin, but soon statewide and later nationwide. Borrowers apply online and must pass a credit check and financial review. If approved, Able makes an offer covering 75% of the total borrowed amount. Terms range from one to three years, and interest rates never top 16% and are negotiable.
Here’s where crowdfunding comes in: Borrowers recruit three to five “backers,” who pitch in the remaining 25% (they don’t have to split it evenly). Backers can charge the same interest rate as Able, or they can reduce it to as little as half of Able’s rate. Borrowers repay Able monthly, and they handle repaying the backers with interest.
Why require backers? Baehr says in microfinancing, business owners often come together for loans. Because they know and trust each other, they’re willing to share each other’s risks. “We can offer significantly lower interest rates by involving people that really know the business and business owner,” Baehr says.
Able originally thought most backers would be family, but they only make up 20%, he says. Many are customers wanting to invest in businesses they’re passionate about and engage with them in a different and important way. He says not a single borrower has failed to recruit their backers yet, and backers are usually in the same cities as the borrowers.
Able helps small businesses facing an all-too-common struggle, says Karlene Sinclair-Robinson, author of the best-selling book “Spank the Bank” and alternative financing expert for small businesses. She says banks offer some of the best rates, but there’s still a credit crunch causing them to turn away small businesses, even with excellent credit. “If they don’t have credit, collateral and cash flow — you need all three — they won’t get a bank loan,” she says.
She says alternative financing, such as crowdfunding and microlending, is helping fund the nation’s growing number of entrepreneurs. “You’ll continue to see more companies like Able come out, because when there’s a need that’s not being filled, we’ll come up with solutions,” she says.
Solving a business problem
Once Dickerson discovered Able, she says they took an immediate interest in Raven + Lily and became a true partner. “Our priority is so much employing these women that I want to be as profitable as possible. I didn’t have to explain myself until I was blue with Able; they got it,” she says.
A model wearing Raven + Lily’s clothing.
Able was inspired by Dickerson’s vision and saw opportunity. “Whereas the bankers saw risks, we saw thousands of customers that just love her company and what it’s achieving in the world, and those are exactly the kinds of companies we want to be able to support,” Baehr says.
Dickerson was approved for a $200,000 loan. Without it, she would have had to turn down orders. “Because I was able to get that loan, I was able to respond to the demand and prove the growth we were having,” she says.
A local advocate who served as an advisor for Raven + Lily since the beginning stepped up as the first backer and recruited the others herself.
Dickerson says the loan was the missing link to her success, and her business grew 189% from Q1 of 2014 to Q1 of 2015. “My valuation is so much higher right now than it was six months ago,” she says. “The loan really enabled me to wait this long instead of having to jump right into series B at the end of 2014. I’m now in my series B seeking to raise $1 million for this round.”
Is your company ideal for Able?
Baehr says most companies Able funds have been turned away by banks for loans. Others explored other online lenders first, but were turned off by high rates (one competitor’s average interest rate is 56%, whereas Able’s is just over 12%).
He says types of companies popular on social media, such as retailers, restaurants, food trucks and consumer packaged goods, often do well with Able since it’s easier to find backers (Able helped beloved Austin food truck Chi’Lantro go brick-and-mortar). The average business Able funds is 4 years old and makes over half a million dollars a year.
Able is ideal for companies that don’t plan to raise equity capital. “Our option is faster and less dilutive as a debt product versus selling equity,” Baehr says.
Since Able offers straightforward term loans for growth capital (as opposed to startup capital), Baehr says it’s ideal for anything from hiring new employees to building a second location to purchasing equipment and inventory. Able plans to offer more products in the future.
For more information about how to start and run a business, visit NerdWallet’s Small Business Guide. For free, personalized answers to questions about starting and financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.
Emily Starbuck Crone is a staff writer covering personal finance for NerdWallet. Follow her on Twitter @emstarbuck and on Google+.
Images via Raven + Lily.
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