BlueSpruce

I like that, the UK student loans definitely seem like an interesting model, especially since it sounds like it’s been working. I also imagine that as long as the rate of repayment is somewhat predictable for a large enough body of loans, some depositors would be willing to take a gradual reduction in their funds, potentially while continuing to contribute to their accounts, as long as they like the research outcomes and social benefits those loans are enabling. The partial repayment enables the community lender group / credit union to essentially donate to/support far more projects, and far larger projects, at a steadier rate over time, than they would with zero repayment (pure grants only).

Exactly, 100%. Small business loans are a way to fund new businesses without ending up with non-worker owners. So once the businesses get off the ground and pay off their loans, they can get into a steady state that’s good for their workers, customers, etc without needing to grow further.

Your last point is a very good one and I think the main reason why venture capital is so much more popular than traditional loans in industries that can get access to venture capital (particularly tech). It’s why I wonder if some credit unions with civic-minded members might opt for some hybrid options that have more generous terms if the research doesn’t pay off.

E.g. loans with voluntary repayment (it becomes a donation otherwise, but the lenders have less money to keep contributing to others in the community). Or at least the ability to renegotiate payment timelines collaboratively. Seems like an important thing to come up with creative approaches for, in order to make loans more attractive even for high-risk innovative research endeavors.

In addition to the other models people have mentioned, one I think that’s an important and sometimes overlooked alternative to venture funding is a good-old-fashioned small business loan. Venture funding became super attractive to startups because it looks kinda like free money. If your startup fails, you don’t have to pay it back, they take on the risk with you. However, if you succeed, they own you forever. And they are going to demand a huge return on their investment to pay for all the other ones that failed.

So in certain light, investment funding is kind of like a super predatory type of loan. With a traditional loan, you have fixed terms, you pay it back, then you’re done with them. With equity investors, you’re never rid of them, as you noted. They sell their piece onto someone else of their choosing, who demands you make them even more money, etc. When the startup period’s over, if you’re not making enough money, yeah technically you don’t have to pay back the loan every quarter. But the investors will fire you and hire different management unless you lay off half your workforce, cut the quality of your product, and make a much bigger margin by next quarter.

Also, lenders can have different structures and we can improve those as well. Instead of traditional banks, they could be credit unions with particular community objectives. Local members deposit their savings, and vote on lending principles and goals, like prioritizing lending to local worker-owned co-ops in their geographic area, and/or lending to community land trusts to enable purchasing of more real estate away from asset-based markets, fund construction of new housing, etc.

Edit: Plus, a credit union could agree on how to handle cases in which the co-op/organization can’t pay back their loan. How to re-negotiate terms, when to vote on forgiving the remainder of the loan (turning it into a community donation) potentially based on demonstrated non-monetary value delivered to the community, and how to distribute that loss among the depositors, etc. There might be options for depositors to opt their funds into riskier loans, or loans they’re willing to turn into crowd-funded donations, maybe even loans with voluntary pay-back terms only (i.e. when the receiving organization can afford to pay it back, to enable more loans to good causes in the community), creating hybrid types of funding as well.