Community Loan Funds for Business Development
by Jack McCall

A short introduction to the use of community loan funds.

On the frontier, the barn raising was a part of the economic and social structure of the community. It was quite simple: when a farmer needed a new barn, all of the farm families in the area gathered, worked together, socialized, and in a couple of days completed the structure. It is a picture of the past, of neighbors helping neighbors to increase the others ability to earn a living, and to increase the economic activity of the settlement.

One of the modern equivalents of the barn raising is the community loan fund gathered by people in a community to assist others in starting businesses.

A small town in Missouri which had been very successful in recruiting and maintaining some large manufacturers found itself in the position of having more jobs than people living in town. Workers and executives were forced to commute from as far away as fifty miles. Most of these people were well paid but were spending most of the income produced by the big companies in other places. As a result, a great deal of the economic benefit of the businesses was being lost.

Community members gathered and decided they would try to recruit housing developers in the same way they had recruited their present industries. This proved to be more difficult than imagined, despite survey results which indicated that more than one million dollars of housing could be sold immediately. No outside developers were interested.

However, there were some young entrepreneurs willing to take the project on if they could acquire the necessary capital. Led by the local bank, a group of local people pooled their money, forming a revolving loan fund. Money from the fund was made available to assist the local entrepreneurs create a corporation and successfully complete the first round of construction. As the houses were sold, the loan fund was replenished -- allowing those who contributed to the fund to make good on their investment, while also maintaining a funding source to assist future projects. And, of course, the town benefited by enabling more of its workforce to live in town.

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