User:Heather Arana

The concept of community capital leverages the social benefits of crowdfunding to take advantage of existing securities regulations. It provides a clear path to sustainable, economic growth through partnerships and engagement for investors with entrepreneurs/business owners and local financial institutions.

Community Capital, based on financial and evolving societal realities, takes into account the changing roles of individuals and banks in the funding of local businesses. The on-going success of crowdfunding across a broad range of industries has significant benefits for individual investors and small businesses.

How Community Capital Works

Congress, by the passing of the JOBS ACT in 2012, conceded that bank financing for small businesses would not be available in sufficient quantity to fuel the faltering U.S. economy. In the period 2000-10, community banks fell from 14,000 to less than 5900 as a result of failures and consolidations to less than 5,900 by February 2015. The Dodd-Frank Act, with its 14,000 new pages, also caused community banks to take a temporary “time-out” from financing our local economies to regroup. Credit unions alone have not been able to replace community banks because a portion of them do not provide funding for commercial enterprises.

This situation has potentially dire consequences for the economy. Basically, small businesses possess the social capital to keep our communities thriving but, the community financial institutions, the traditional funders for this vital segment which includes 28 million companies, are reticent to loan.

From this combination of factors, the Community Capital model was born. The core premise was that by utilizing crowdfunding to shore up balance sheets of small businesses, the banks and credit unions would have a flow of viable potential business customers and be able to say “yes” to more commercial loan requests. Rather than exclude these funders from financial innovation, Community Capital allows them to advantage of regulations by ultimately collaborating with small businesses and investors. The roots of the Community Capital model were born.

Community Capital – Businesses:

One of the most significant barriers to businesses is equity capital. It is both very expensive and very difficult to find. Typically, small businesses draw capital from:

•	Friends/Family-- the starting point for many small businesses and entrepreneurs who reach out to friends and family, but there is a limited amount of capital derived by this source. •	Accredited Investors represent 2-3% of the U.S. population, many seeking similar returns that venture capital does. Because they tend to have built-in biases toward tech companies, accredited investors are not a reliable source for the majority of U.S. “meat and potato” companies. •	Venture Capital, often talked about, but less than 2% of the deals that are presented get funded and according to the Kaufman Foundation. FOOTNOTE HERE •	Banks and non-bank financing firms…but there are far fewer community banks than in previous decades, credit is tighter and many alternative financing methods are new or untested.