It’s common for smaller companies to struggle to find fair financing, especially when they need a small amount. Two-year-old Pittsburgh-based fintech Honeycomb Credit has stepped into this gap.

Under a crowd financing model, Honeycomb evaluates the business and gives business owners the tools to tell their story. Its website includes a portal to host campaigns where community members can invest as little as $100 and earn a competitive interest rate of 8 to 14 percent. They vote with their wallets on brands they already know and love.

“We’re bringing that relationship banking model back, but in this scalable way where the community is actually the relationship banker,” CEO and co-founder George Cook says.

This week, Cook shares how the startup began, the results and Honeycomb’s recent expansion with its first Northeast Ohio employee.

Filling a vacuum

Cook’s family has been involved in a community bank in rural Pennsylvania for about 130 years. He also had a front row seat to the industry’s consolidation while consulting with banks at TransUnion. But the idea for Honeycomb came together as Cook worked on his MBA at Dartmouth College and met his co-founder, Ken Martin, who is a small business owner.

Cook says the problem is that as underwriters move further away, qualitative analysis has been de-emphasized, and banks are retreating from small business lending. Business owners are scrambling in response because those who’ve moved into that vacuum can be rather predatory.

“We often find businesses that are paying 50, 60, 100 percent APR on the loans that they’re borrowing,” he says. “To us, that’s really heartbreaking. It’s very hard to grow a business whenever you’re paying that type of interest rate.”

Most bankers welcome the ability to point their customers toward Honeycomb.

“When we’re out talking to banks, they frequently tell us that it’s very hard for them to make a sub-$100,000 loan anymore, given all of the regulatory burden that they face,” Cook says. “They don’t want to say no to these businesses.”

They want to foster community entrepreneurship, and they don’t want to risk losing core banking products — such as a credit card, merchant services or deposit relationship — with these small business customers by saying no to a loan that’s too small.

Accountants are another group excited about what Honeycomb provides.

“If you ask a business owner who they ask for financial advice, No. 1 is the business owner next door, but No. 2 is their accountant,” Cook says. “Frequently, accountants are getting these questions, ‘Where do I get $30,000 to buy a food truck?’ or ‘Where do I get $25,000 for that second expresso machine?’ or whatever it might be.”

Accountants are scratching their heads because historically they would send business owners to community banks, which have consolidated or changed how they operate.

Proving the model

Honeycomb has completed 15 campaigns, which typically run 30 to 90 days. The Innovation Works portfolio company, which operates out of the AlphaLab accelerator, is registered under the Securities and Exchange Commission’s crowdfunding regulations. It takes 6 to 8 percent of the total raise of each successful campaign. In addition, it charges investors a small percentage on a sliding scale, based on the amount committed.

While there’s risk — because small businesses are inherently risky — Cook says Honeycomb does its due diligence to ensure that risk has a fair return. It hasn’t had a single delinquency or default on the platform so far.

“We’re certainly not advising people to go out and take all of their life savings and put it in their local coffee shop,” he says. “We do think it’s an interesting and exciting way to diversify a little bit, to move away from completely investing in big national stocks and bonds and Fortune 100 companies.”

Honeycomb has proved businesses absolutely have these capital needs and that many people are interested in investing in their local community, especially when the business has a strong brand.

The Pittsburgh Pickle Co., for example, raised money through Honeycomb’s platform to purchase new equipment to expand its production and help other artisanal businesses produce gourmet products. It offered investors (its customers) an 11.5 percent annual interest rate on a 60-month loan package. The campaign, aiming to raise $10,000, ended up at 500 percent of its goal.

Scaling up and out

Last July, Honeycomb raised $1 million from local angels and the Innovation Works network. It’s using those funds to scale up the team and expand. It already had done a few loans in upstate New York based on a Pittsburgh referral.

“We ultimately view this as a nationwide problem, and we think this model can be helpful across the country,” Cooks says. “We’re making a concerted effort to move into Central and Northeastern Ohio and to start putting this model to work in our second core market, which will become the blueprint for how we expand the product and the model across the country.”

Cleveland-based Pope’s Kitchen became the first Ohio campaign, as Honeycomb partners with the country’s third-largest commercial shared kitchen space. The Cleveland Culinary Launch and Kitchen has hundreds of alumni companies and 80 businesses working out of its space at any given time, he says.

This partnership should help with one of Honeycomb’s biggest challenges — touching base with small businesses at the right time.

“We might talk to 100 small businesses, but maybe only five or 10 of them are thinking about growth. We’re trying to find ways to reach small businesses when they’re ready to take that next step,” Cook says.

Honeycomb also is partnering with the Urban Redevelopment Authority of Pittsburgh. One of the URA’s programs offers 40 percent matching, up to $30,000, for façade improvements. Honeycomb will work with business owners to raise the remaining funds through campaigns, where community members can see their neighborhood flourish and perhaps property values rise.