When Banks Say No, Where Do You Go? Ask Boston’s Democracy Brewing. by Forbes – Entrepreneurs

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Before he was the co-founder of Democracy Brewing in Boston, James Razsa was a community organizer – hence the name of his brewery, located in the long-vacant Windsor Button building in the heart of downtown, near Boston’s theater district and a large student population.

James Razsa (left) and Jason Taggart of Democracy Brewing in Boston.

Courtesy Democracy Brewing

Razsa has a bachelor’s degree in community studies and economic justice from the University of California, Santa Cruz. Before becoming an entrepreneur, Razsa was the director of campaigns for 350 Massachusetts for a Better Future, a community organization dedicated to fighting climate change.

But Razsa also had five years of experience as a barback, dishwasher, bartender and food runner, and he had interned with Jason Taggart, head brewer of  John Harvard’s Brewery and Ale House, with locations in Cambridge and Framingham, Massachusetts.

Taggart is now Razsa’s partner in Democracy Brewing, which opened last July 4, just five and a half years after Razsa and Taggart first decided to start a worker-owned business.

“It took us a long time,” Razsa says. “Me and my partner don’t come from money.”

Razsa likes to joke – or maybe not joke – that between the two of them he and Taggart had a bicycle for collateral. That line didn’t go over well with bankers, and that’s where Boston’s Local Enterprise Assistance Fund came into the picture.

LEAF is what’s known as a Community Development Financial Institution, or CDFI.  Donna Fabiani, executive vice president of Opportunity Finance Network, the national association of Community Development Financial Institutions, explains that CDFIs were created to work in lower income, disadvantaged communities “not getting sufficient access to capital.”

“If you think about it, banks might have branches in a low-income communities, but they don’t tend to make loans in those communities,” Fabiani said. “It’s too risky.”

Banks are required by federal legislation, however, to lend in the communities in which they make deposits, so they do it through CDFIs, which are better at handholding high-risk businesses to make sure they don’t default on their loans.

“Honestly there are times when a business owner will walk in with a shoebox of receipts,” Fabiani said. “CDFIs can work with somebody like that, not giving them a loan, but making them loan-ready.”

Redcoats hanging out at Democracy Brewing in downtown Boston.

Courtesy Democracy Brewing

A CDFI will help that entrepreneur set up books, explain that she has to keep business finances separate from family finances, help with marketing and creating an online presence.

“CDFIs offer the full gamut of assistance, helping them learn how to run a business and grow a business,” Fabiani said.

In addition to receiving funding from banks, Community Development Financial Institutions also receive money from the U.S. Treasury Department and private nonprofits in the form of grants and debt.

In the case of Democracy Brewing, the CDFI that stepped into the breach was LEAF. Ben Selden, LEAF’s development and marketing manager, said Boston has a “huge wealth inequality problem.”

“That breakdown is often based geographically, and also based on race,” Selden said.

Selden said just how glaring the inequality is became apparent in a 2015 report by the Federal Reserve Bank of Boston, Duke University and the New School. As the Boston Globe reported, the household median net worth was $247,500 for white families in Boston, compared to $8 for black families. Dominican families in Boston fared even worse, with a household median net worth of $0.

“That report definitely generated a lot of buzz when it came out,” Selden said.

LEAF was Democracy Brewing’s “saving grace” when conventional banks wouldn’t give him and his partner the time of day, Razsa says.

“They ended up swooping in at the last minute and saving us,” he said.

More good times at Democracy Brewing.

Courtesy Democracy Brewing

Not only did LEAF loan Democracy Brewing the capital it needed to open, but it also wrote a glowing credit memo that allowed Razsa and Taggart to raise additional funds. Razsa says he and Taggart do a good pitch to potential investors, but “at the end of the day you want a third party’s opinion,” which is what they got in the credit memo.

“They were lead lender on $611,000 for our brewery; their organization put down $200,000,” Razsa said of LEAF. “We were also able to raise private equity of $600,000 because of their due diligence. It’s amazing.”

Today, nine months after opening, Democracy Brewing is doing well, with 31 employees, including 12 who have earned the right to buy in to the business for $1,000 each. Razsa is CEO and president of the board of Democracy Brewing, but as he notes, in a few months he’ll have a new group of 12 owners coming in.

“I’m going to have some new bosses, which is interesting, but it makes sense for me to be accountable to them, having them know how the business is doing,” Razsa says.



April 26, 2019 at 07:54PM
Forbes – Entrepreneurs