Like many small business owners, Josephine Hernandez needed a little bit of money – a few thousand bucks – to help her business grow. But Hernandez, who co-owns the 367 Grove Street Laundromat with her husband, discovered first-hand just how difficult it is to be a small businessperson in today’s economy.
Since the 2007 recession, and the weak recovery that followed its official end in 2009, would-be borrowers have had limited access to credit.
“We were just trying to find a way to get more money to improve our business,” said Hernandez. “But we’re only two years into owning this business. And because we haven’t owned a business for very long, all the banks were rejecting me for a line of credit or a loan.”
“Small businesses didn’t really have the same access to capital that my clients did at Goldman.” – Jay Finch
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“While I was working in finance at Goldman, I would try to keep my ear to the ground with what was happening with the small business folks in Jersey City,” said Jay Finch, an Ohio native who moved to Jersey City after college to take the job at Goldman. “I was really frustrated to learn that they just didn’t really have the same access to capital that my clients did at Goldman. And I wanted to be helpful.”
After two years of frustration with his job and what was happening in the community, Finch said he decided to build a business that could solve this credit access problem.
He teamed up with former Goldman co-worker Julissa Arce to start Socstock, a company that helps people in the community pool together small amounts of money to support micro-businesses that might otherwise be unable to raise money for their operations.
$100 and a dream
Community groups in developing nations have occasionally used similar business models to raise seed money for small businesses in Africa and south Asia.
“We decided to launch this program because we were seeing all these small businesses struggle, but we were also hearing from the community, ‘Is there anything we can do?’ ” said Arce, noting that Socstock is shorthand for “social stock.”
“So we started thinking of ways that we could facilitate the interaction between small businesses that needed funding and customers in the community that wanted to help.”
Through Socstock, Arce and Finch will work with a business to identify a specific need and a dollar amount required to meet that need. A “need,” Arce explained, can be anything from better bathroom facilities to more tables and chairs, more square footage, or restaurant quality kitchen equipment. Socstock will then sponsor 30-day campaigns to help the business raise money from its customer base and the community.
The laundry
To get a real-world sense of how a Socstock campaign works, consider the current effort to raise money for the 367 Grove Street Laundromat. The Hernandezes are currently trying to raise $1,000 to increase their dry cleaning storage area and make improvements to their back-room office space.
Customers who want to participate in the campaign are being asked to invest $100 in the business. Everyone who gives $100 will receive a $150 credit voucher from the laundry that can be redeemed for dry cleaning and laundry services.
In addition to 367 Grove Street Laundromat, Socstock is also currently running a campaign for DeCarlos Bespoke, a men’s tailor at 411 Monmouth St. Bespoke owner DeCarlos Morse is trying to raise the hefty sum of $10,000 for an expansion, according to the Socstock web site.
If the goal sounds unrealistic, Arce insists that it isn’t.
“We look at what the average receipt totals are from a business’ regular customers,” said Arce. “We wouldn’t do a $10,000 campaign for a laundry or a bakery because the average receipts there are $20. In the case of DeCarlos Bespoke, they make custom-made suits and the average receipt there is $500. So raising $10,000 isn’t so unreasonable from their customer base.”
More campaigns coming
If a campaign reaches its dollar goal within 30 days, the business gets the money to use for its stated purpose. If a campaign fails to reach its dollar goal in 30 days, the donated money is returned to the customers who gave it.
“The reason we do that is because if the business needs $2,500 to buy [a restaurant quality] espresso machine, and they only get $1,000, they still aren’t going to have the money they need to buy the espresso machine,” said Arce. “And it can make it harder for them to deliver the goods and services they said they were going to deliver.”
Socstock, a for-profit company that started its first campaigns this month, earns its money from small businesses that pay $50 a month to subscribe to their online platform. The businesses then pay a 3.5 percent transaction fee for each successful campaign, said Finch. Alternatively, small businesses can choose not to subscribe to the Socstock site, but will pay a 5 percent transaction fee for each successfully completed campaign.
In the coming weeks, Arce and Finch expect campaigns to be launched for the Sky Tobacco Company, the Cupcake Salon, Steam Café, K9dergarten, and the Lamp Post Bar and Grille – all based in Jersey City – in addition to one company in New York.
Currently, all of the Jersey City businesses that have Socstock campaigns running, or that will have in the near future, are located downtown. But Finch and Arce emphasized that any business can launch a campaign once it identifies a specific need. And they encourage customers to be proactive, too.
“One thing that’s really powerful is when customers recommend specific improvements to the businesses they like going to and recommend that the businesses start a campaign,” said Finch.
More than money
In addition to working with the businesses to raise money, Arce and Finch offer other assistance.
For example, so that Hernandez could accept credit card payments from her customers, she was planning to sign up with a credit card service that, she said, “would have charged between $35 and $50 a month.” But Finch helped her find a cheaper way for the laundry to take credit cards.
Finch also recommends that local businesses contact Rising Tide Capital, a Jersey City-based nonprofit that helps struggling companies succeed despite limited access to financial resources.
E-mail E. Assata Wright at awright@hudsonreporter.com.