With their roots in the entrepreneurial culture of San Francisco, Kiva Zip is a subsidiary of Kiva, a successful microloan platform which began in 2005. Kiva Zip is a separate but connected project of Kiva that takes a more direct approach to microloans. Kiva Zip is currently in its alpha testing stage, and will later be integrated into the rest of Kiva.
The success of Kiva Zip is undeniable. So far they have loaned $9,321,580 to over 59,000 individual borrowers and over 11,000 small businesses. These loans have also been met with a 89% repayment rate. With success rates like these, it seems that Kiva Zip is worthy of a thoughtful evaluation from any prospective borrower.
Types of Loans Offered
Microfinance Loans – Up to $500,000
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While it’s difficult to evaluate Kiva Zip alongside traditional lenders, there are definitely many benefits to receiving a loan from Kiva Zip.
The main benefit that draws attention to Kiva Zip is that they have a 0% interest rate. Impossible, right? Not with Kiva Zip. Their platform is built around borrowers receiving small loans and making quick repayments, and the 0% interest rate is innovatively changing the way that young businesses are borrowing money. This is unique even from the traditional Kiva model.
Another great financial benefit of Kiva Zip is that they charge no fees. This may seem shocking considering that they also don’t charge interest, but it’s all true. While many other lenders will charge fees for opening and closing the loan, in addition to prepayment penalties at times, these fees do not exist with Kiva Zip.
Kiva Zip works much differently than other microloan providers, and here’s what we mean by that: Kiva Zip is a non-profit organization that matches lenders with borrowers based on trust and business potential. All prospective borrowers (individuals and businesses) are required to first make a donation in order to become a part of the Kiva Zip community. Once they have lent some money to another business, they can prepare to receive their own funds.
In order to receive funds from Kiva Zip, prospective borrowers must first ask their friends and family to lend money. This experience gives prospective borrowers credibility as well as allows more people to be involved in the entrepreneurial process. Once the borrower has reached a specific goal, their petitioned loan will then be posted to the rest of the Kiva Zip community and other lenders can contribute to the fund.
The benefits of this model are that essentially anyone can apply. The qualifications for receiving funding through Kiva Zip are that the borrower must be trusted by enough family and friends and provide a solid enough business plan in order to be trusted by other lenders. This has very little to do with credit score (according to their website credit score doesn’t even play a role), and has much more to do with the overall potential of a business.
In summary, the benefits of Kiva Zip are:
- 0% interest rates
- No fees
- Flexible qualifications, based on character of business
- Innovative model of lending and borrowing
While it definitely seems that Kiva Zip has a lot of benefits to offer, it certainly will not be the right option for many businesses.
The negative aspects of Kiva Zip are really tied to the entire structure of the program. For starters, Kiva Zip is not going to be a quick option. The platform requires that any potential borrower first make a donation to another borrower. After this donation has been made, and the petitioning borrower is given the opportunity to begin asking for their own funding, they are required to fundraise as much as they can from their family and friends. The time that these steps take is precious time, and many borrowers will not be interested in such a lengthy process.
Likewise, Kiva Zip cannot offer as much funding as other lenders can. Kiva Zip has developed its own payment structure that allows borrowers to receive more funding based on their diligent repayment of past loans. Initial borrowers can only borrow $5,000 with a 6-12 month repayment plan. Once this has been repaid, borrowers can qualify for their second loan of $10,000 with a 12-26 month repayment plan. This tier system goes up to $20,000 which is the maximum amount that any borrower can receive from Kiva Zip lenders. Compared to other lenders, $20,000 may not be a substantial loan for some borrowers.
The intricacy of the process is one other consideration that may make Kiva Zip an undesirable choice for many borrowers. Each borrower needs trustees in addition to being responsible for reporting on the progress of the business that is borrowing.
The requirements to receive a loan from Kiva Zip are entirely untraditional, but they may still cause a roadblock for certain prospective borrowers. Requirements for prospective U.S. borrowers include:
- No foreclosure, bankruptcy, or under any liens
- Cannot be engaged in any of the following activities:
- Multi-level marketing / direct sales
- Illegal activities (e.g. gambling, scams)
- Pure financial investing (e.g. stocks)
- Borrowers must either 1) be endorsed by a Trustee, or 2) participate in the Kiva Zip No Trustee pilot program (see FAQ page for more details)
- Must have a viable business plan
- The trustee must know how the borrower will use the loan and understand how it will impact the business
- Borrower will be required to invite a number of lenders from their own network to fund their loans
- The loan must be seen to have a positive social impact
- The borrower must be over 18
In short, Kiva Zip may not be the right option for businesses who need quick, simple, or large loans.
*Star Rating is determined by evaluating APR range, minimum credit score requirement, revenue requirement, length in business requirement, and other related approval data.