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Today’s Community Banker: Crowdfunding


Today’s Community Banker: Crowdfunding

By: Steve Sadler, CEO of Allegiancy

October 14, 2014

Crowdfunding – what’s recently become the media’s darling story when they write about the Jumpstart our Business Startups (JOBS) Act – makes me think about a story my father-in-law told me.

He was an entrepreneur.  Through the GI Bill, he attended medical school and became a dentist, and then moved to Eastern Maryland to open a practice. He had no money. No operating capital. Just a license to practice dentistry and the drive to make a difference in his community.

A local banker took a liking to Dr. Bauman and told him that when he was ready to open his practice, to come see him.   That banker ended up loaning my father-in-law the money he needed to buy furniture, X-ray machines and equipment, and to start the business.

It turned into a successful dental practice, in part because one banker believed, and understood that my father-in-law simply needed capital to get started.  And the banker provided that capital.

Years later, my father-in-law ran into that banker.  By then, Dr. Bauman understood far more about what it took for banks to lend small businesses money.

He asked the banker how in the world he had managed to get his loan – a loan to a dentist with no money or business history – approved by the bank’s leadership.

Turns out, the banker never got it approved. “I approved it myself,” he told my father-in-law. “I knew this town needed another dentist.”

That loan application sat in the banker’s desk drawer. That banker believed in a business, took a risk, and it paid off.

Part of what’s exciting about the crowdfunding element of the JOBS Act is that it can make that difference for small businesses like my father-in-law’s so many years ago.

Crowdfunding has the potential to replace the old-school, character-based lender. And it is abundantly clear that the traditional lenders are gone, replaced by computer models that cannot appreciate nuance.  It is very unlikely the new dentist could get a loan today, because even former Federal Reserve Chairman Ben Bernanke could not get his mortgage loan refinanced recently.

Crowdfunding lets the community decide if your widget or your business on Main Street is worth investing in. They don’t have to check a box, or run your credit score, or turn you away if you didn’t earn at least $2 million in revenue last year. They can invest in you based on the fact that they believe in you.

And it’s that return to character-based lending that will help bring back our economy and create the very jobs and healthy small and mid-sized businesses this country needs.

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