A few years ago, Chris Schaefer, a retired organization development consultant, asked his financial advisor about investing locally. When the advisor came up empty-handed, a friend told Schaefer about local investing opportunity networks (LIONs), which connect individual investors with local businesses that need loans.

Soon, Schaefer and two others launched the Berkshire-Columbia Investment Network (BCIN), named for Schaefer’s home county in Massachusetts and the adjacent county in New York State.


The first LION was founded in 2008 in Port Townsend, Wash., by people who “wanted to put some of their money into local small businesses,” says James Frazier, a co-founder of the Port Townsend LION. Frazier says that there are now 56 local investment groups that he knows about nationwide. Unlike an investment club, a LION simply introduces individual investors to local businesses that need funding. “We don’t make collective decisions,” says Schaefer.

Frazier, a CFP who has worked with hedge funds and private placements, notes that because of the accredited investor rules, advisors are likely to be restricted in how much they can help clients who are interested in LIONs. While advisors may be able to suggest some appropriate questions to ask, they probably won’t be able to recommend LIONs as an investment mechanism.


Instead, clients have to do their own due diligence, and advisors will have to work closely with their compliance departments to see how much help they can offer. Due diligence is “something that a lot of people aren’t used to,” says Frazier. “People have to make their own investment decisions.”

Schaefer’s Berkshire-Columbia LION gets referrals from the local Small Business Development Center and another organization affiliated with the local Chamber of Commerce. When deals come in over the transom, Schaefer sends business owners to these partners to make sure their marketing plans and business projections are ready for a formal presentation to the LION.

“We have had four serious presentations to us,” says Schaefer. Most last 15 to 20 minutes, followed by a 10-minute question-and-answer period. Interested members follow up by contacting the small business directly. So far, BCIN members have made about $95,000 in loans to two businesses. The loans tend to pay in the range of 5% to 8%. Frazier, of the Port Townsend LION, agrees that mid-single-digit rates are the most common.

Since it was founded, members of the Port Townsend LION have invested about $3 million in local businesses and nonprofits. One loan had to be restructured and another borrower went bankrupt. “Most everything else has been paying,” says Frazier, “and I think people are pretty happy with the performance so far.”

Joseph Lisanti, a Financial Planning contributing writer in New York, is a former editor-in-chief of Standard & Poor’s weekly investment advisory newsletter, The Outlook.

Read more:

Register or login for access to this item and much more

All Financial Planning content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access