Mr. P’s shop borrows at 33% rate; yes, city needs lococentric capital co-op

People in the city could pool small and mid-level investor capital into a lococentric investment fund to spare local firms from having to pay 30 percent-plus interest rates to faraway lenders.

The proposal circulating for a Noogacentric investment co-op for local investors seems all the more attractive when we learn how far local companies go to borrow when facing a liquidity crisis.

A local company, blessed suddenly with an abundance of orders, went into hock for $117,721 to obtain $88,512 in credit. According to contract papers between a local company and WebBank in Salt Lake City, Utah, the debtor was wired the amount of the loan, and pays $535 every weekday by automatic withdrawal from the company’s account, making $11,772 in payments each month for 10 months.

The payments are rhythmic, “and so far it hasn’t affected the company, but it’s a pretty big payout,” says Mr. P, the proprietor, whose name he asks not be revealed. He admits the interest rate is 33 percent, but points out, “it’s also a noncollateral — a quick loan. *** It’s the quickness — you can get the money, plus, you know, the high interest rate is just something you got to pay.”
He says the stiff interest rate is worth it to be able to cover his payroll. “We’ve got three large jobs at one time, and there just wasn’t money in the company to fund it, so I had to have quick money real quick to [get] these jobs. *** I wouldn’t call it evil, but you start taking 30 to 33 percent of your profit, that’s a pretty good margin.”

I ask Mr. P if he would like to have a local source of quick cash. Yes, he said. Even if his interest rate had been halved. “Fifteen — sixteen percent is still a good return for an investor, plus it helps the small business out,” the businessman says.

His lender is WebBank, in the heart of Mormon country, “an FDIC-insured, state-chartered industrial bank that provides customized consumer and commercial financing solutions on a nationwide basis,” it says on its website. “WebBank is a leading provider of closed-end and revolving private-label and bank card financing programs.”

Lococentric finance hub helps internal economy

Lovers of local economy have taken an interest in the idea of Noogacentric investment co-op that would let local small investors like me invest in local small companies such as Mr. P’s. The Noogacentric Venture Fund, modeled after that of Volunteer Energy Co-op in Bradley and counties north or, perhaps, Ace Hardware, would be a means whereby local economy can avoid entering the federally regulated investment field of securities, and it would let small investors put their funds in a local hopper. That pot would be overseen by people such as those that run CoLab in Chattanooga, a company that helps startups. They would have accounting, economic, forensic and capital-oriented skills, advising investees and borrowers and stewarding the money given to them in trust.

When I talk up my concept with Mr. P, he says it sounds like a good idea. Chattanooga, my hometown — like your hometown — needs a lococentric, local economy-boosting fund such as I propose. A journalist who is working on the theory of local investing is Amy Cortese, who on a website,, makes a series of helpful suggestions about loving your neighbor and “shopping” local.

“A dollar spent at a local independent business, on average, generates three times more local economic benefit than a dollar spent at a corporate-owned chain. According to the GAO, a quarter of the country’s largest companies paid no federal income tax in 2005 on more than $1 trillion in revenue.

“Just 1% of the money flying around the stock market goes to funding businesses through public stock offerings; the rest is trading and speculation. Forty percent of agricultural startups are denied financing, according to the Carrot Project. And more than half of farmers surveyed by the National Young Farmers Coalition cited lack of capital as their biggest obstacle.

“The median IPO size 20 years ago was $10 million; in 2009, it was $140 million. The IPO market is effectively closed to 80% of companies that need it. If Americans shifted just 1 percent of their investments to locally owned companies, more than $260 billion would be injected into the Main Street economy — without costing the government a dime.”

The great blessing of a Chattanooga local investment co-op is that it could provide loans and capital from the existing money base. In other words, it would be money that already exists. It would not be credit, created by the fractional reserve process. It would not be new money. It would not be inflationary.

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