Liz Graznak of Happy Hollow Farm used the Kiva Zip loan to build a new high tunnel for the farm.

[imgcontainer] [img:Kiva02.jpg] Liz Graznak of Happy Hollow Farm used the Kiva Zip loan to build a new high tunnel for the farm. [/imgcontainer]

“I haven’t had a paying job for the last six years,” says Liz Graznak, owner of Happy Hollow Farm, located outside of Jamestown, Missouri. “Every ounce of money that I have made, I’ve put back into the farm… According to my tax statements, the farm isn’t making enough money for a bank to give me a loan. I don’t have a weekly paycheck I can bring in and show them. I think it would be very hard for me to get a traditional loan.”

Thanks to a relatively new loan program called Kiva Zip, Graznak had a better option. Kiva Zip is an online platform that connects entreprenuers with its global community of lenders to provide them with zero interest loans that they repay over the course of three years. Graznak secured a $10,000 loan to construct a high-tunnel for winter growing on her farm.

Kiva Zip’s parent organization, Kiva, launched in 2005 and works internationally to connect people in poverty with a pool of money created by individual lenders who have chipped in amounts as low as $25 to make available zero-interest loans. Kiva takes no cut of the money from the lenders, nor do they charge interest to the microfinance institutions they work with. When a lender is repaid, she can withdraw her money, or reinvest to support another person in need.

Kiva Zip is a pilot program that launched in 2011 with the same idea, but only facilitates loans to entrepreneurs in the United States and Kenya.The idea to is give business owners who might have a difficult time obtaining a loan or taking on high interest rates access to zero interest loans from their own communities and from Kiva’s network of lenders.

Prospective borrowers must solicit loans from at least fifteen people in their own personal network before their loan page is posted on the Kiva Zip page This is meant to instill accountability into the process by ensuring that the borrower has personal connections to the lenders and is motivated to follow through with repaying the loan.

Justin Renfro, a program manager at Kiva Zip, says, “We’re not looking at your credit score or cash flow or business plan. We’re saying you have to prove that you have people within your own community who are willing to lend you $5 each, and if you can prove that you have that community and support network around you, then we’re going to show you to the world.”

[imgcontainer right] [img:Kiva01.jpg] David Edmondson of Salt and Savour used his loan to buy new fermentation tanks for his sauerkraut business. [/imgcontainer]

This works much of the time, but not always. Kiva Zip loans are a little more risky than the standard Kiva loans. Lenders are not guaranteed that they will be paid back, and there’s no intermediary to help make sure repayments are disbursed as scheduled. The current repayment rate is 88.9%, versus Kiva’s 98.79%. Payments may be late, or they may never come. While this makes the loan less appealing for some lenders, the ability to directly communicate with a borrower through the Kiva site means an opportunity for late or delinquent borrowers to explain exactly why they are having difficulty repaying the loan. According to Kiva Zip’s website, “in the vast majority of cases we have seen Kiva Zip lenders respond with generosity and understanding.”

Lender-borrower interacting can be a boon for business owners . During her loan-raising endeavor, Happy Hollow Farms’ Liz Graznak said she had “a number of one-on-one conversations with lenders who contacted me saying how great the project was and how great they thought it was that I was farming.” She, in turn, kept them abreast of her progress. “I communicated with the whole group of lenders… through the whole process of putting up the high tunnel… letting them know what I’m doing and saying thank you.”

This crowd-lending model is often compared to crowdfunding sites like Kickstarter, but there are some important differences. The most obvious being in the Kiva Zip program the borrower pays back money rather than offering rewards in exchange for donations. David Edmonson, who collected a $5,000 loan through Kiva Zip for Salt and Savour, his sauerkraut business in Dunsmuir, California, said that while he considered crowdfunding, it didn’t make sense for him as a brand-new business owner. “Part of the problem is that you pay those back with product or t-shirts or things,” he explains, “I don’t have all kinds of promo pieces like t-shirts. This seemed like the easiest and quickest and most promising way to secure the funds I needed.”

Kiva Zip connects new-business owners to a global community of lenders. While projects on sites like Kickstarter are primarily funded by people within an entrepreneur’s own network, Justin Renfro estimates that only 20% of lenders in a typical Kiva Zip loan come from people known to the borrower.

[imgcontainer] [img:Kiva03_1.jpg] Kiva Zip recipients Cody Reid and Elizabeth Powell of Five Foot Farm. [/imgcontainer]

While the Kiva Zip program is available to any business owner in the United States or Kenya, the online platform’s ability to connect people living in sparsely populated places with a global audience makes it a uniquely useful tool for rural business owners. Elizabeth Powell, Co-Owner of Five Foot Farm in Quincy, California, said as a farmer it’s difficult to secure traditional funding or grants. “In a lot of the good work that we try do in rural areas,” Powell says, “It’s harder to tap into the funding that often focuses itself around cities. We work for non-profit organizations as well, and we’ve found that there’s a lot more foundation and grant money focused on urban communities versus rural communities.”

Liz Graznak agrees that the program is filling a funding hole in rural communities. “Since I’ve done it, I have two farming friends who have applied and gotten loans… I think it’s meeting a need that young, beginning farmers who don’t have a lot of equity or capital and don’t have years and years of experience.”

Salt and Savour’s David Edmonson noted that while living in a rural place sometimes means a lack of local funding sources, he’s found that living in a small, tight-knit community helped him raise funds with Kiva Zip’s model. “One of the really neat things about being in a rural area is that people are really supportive,” he said. “We have a really challenged economic base. The job market is pretty bad and our unemployment rate is higher than anywhere else in California, so when you have a business start-up, people really get behind it.”

Once lenders get behind a particular project, they are likely to reinvest their money in new projects once they are repaid. This “revolving door” of investments is what Justin Renfro says makes Kiva Zip so unique. “We have hundreds of millions of dollars in a revolving loan fund that’s being lent out, repaid, and re-lent out. So with the same $25 dollars, I can support one farmer, and then when he repays me, I can support an artisan somewhere else, and on and on.”

Since his project concluded and he was able to buy new fermentation tanks for his sauerkraut business, Edmonson has entered Kiva’s lending community and made a few loans of his own. These projects have begun repaying their loans, and as the funds build up, Edmonson plans to reinvest. “I really like what the Kiva Zip loan program has done for me,” he says, “so I like the idea of continuing to support other small businesses in the same manner.”

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