For a small business, securing a loan is no easy feat. Turn to a traditional bank, and they’ll likely be among the 82% of small businesses denied financing. Try a merchant cash advance program for quick capital, and the business could be facing annual percentage rates between 40% to 350% based on the lender and size of the loan. Both solutions fail to get to the heart of the business, and can force owners into terms they’ll unlikely be able to repay.
George Cook and the team at Honeycomb Credit saw a different route. Cook grew up in Somerset, PA, where his family had been running a community bank for the last 130 years. “I spent a lot of time thinking about community banking, and the relationship banking model that it was built on,” explains Cook.
In community banking, lenders consider each applicant more holistically, it’s not just about their cash flow, but also their place in the community, their character, and the product itself. “I saw that there was this massive consolidation within the banking industry and that the relationship banking model was disappearing,” Cook says.
Instead of reverting back to the community banking model he grew up with, Cook married the business with scalable tech to create Honeycomb Credit, a new kind of investment tool for small businesses.
At its heart, Honeycomb Credit can be called a more mature Kickstarter. In many ways, the experience feels like the popular crowdfunding sites, but “instead of putting in $100 and getting a t-shirt or thank you note,” says Cook, “someone can actually invest a hundred or a thousand dollars or more into a locally owned business, helping them grow while at the same time, earning a competitive rate on the investment.”
The platform also empowers investors of all shapes and backgrounds, many drawn to the campaigns because of their love of one of the small businesses.. The average investment hovers around $1,000; “We’re finding that once people make an investment, they have a high propensity to continue on and make other investments in other small businesses on the platform.
Honeycomb Credit is different from a traditional lender when it comes to its flexibility in the underwriting. “We can work with a lot of businesses that might be too small or too young or might just have a capital need that’s too modest to go to a traditional bank,” Cook says.
To date, Honeycomb Credit has successfully funded 40 small businesses in the Pittsburgh-area.
Photo Credit: Honeycomb Credit
One of the successful campaigns was The Pittsburgh Pickle Company. Before Honeycomb Credit, the team of three brothers sliced hundreds of cucumbers by hand to fulfill orders. To expand production, Pittsburgh Pickle Company wanted to buy professional slicing equipment, but the capital they needed was far too small for a traditional bank loan. Instead, they turned to Honeycomb Credit to start a campaign and raised more than enough funding to purchase additional equipment beyond the slicer. Because of the flexibility of Honeycomb’s platform, Pittsburgh Pickle Company could set different tiers and fundraising goals, expanding their ambitions as more investors came on.
While some businesses go the traditional crowdfunding route on Honeycomb Credit, Cook notes others have used the platform to consolidate debt. When the owners of Iron Born Pizza found themselves in over their heads with monthly payments from merchant cash advances, they used part of their campaign funding to refinance the debt, making monthly payments more manageable and expansion possible.
With a magnitude of success stories, it’s no surprise Honeycomb Credit was awarded Innovator of the Year 2019 in FinTech by the Pittsburgh Tech Council. But to say the success comes from the technology alone would be half the story. Honeycomb Credit’s campaigns live online, but support from their local customers is crucial. Neighbors and fans of businesses are voting with their dollars, explains Cook, investing in the vision of the main street that they want to see.
“The benefit of raising money on the platform is the marketing boost. Businesses often see increasing revenue, both from the people that have invested, because they literally have a vested interest, but also just from getting new exposure to other people in the community who might not have heard of them before.”
Honeycomb Credit’s community funding is a win-win for small businesses, empowering customers to become investors in small businesses they support, while also boosting their business and visibility.
As successful campaigns come rolling in, Cook looks to expand Honeycomb Credit beyond Pittsburgh. Honeycomb is launching campaigns in Cleveland, and plans for expansion to other cities, with both an on the ground team as well as a digital presence. “We think that there’s an important component of being able to sit down and meet business owners face to face that a lot of online lenders are neglecting,” Cook says.
Visit Honeycomb’s site to explore its library of live campaigns.
EMMA DIEHL – Contributing Writer
Emma is a Pittsburgh-based technology and lifestyle writer, covering everything from machine learning in law enforcement to historic building preservation. Her byline has appeared on XOJane, NPR, Huffington Post, NEXTPittsburgh, and Very Local.
Originally published on Saturday, October 5th, 2019