How to Do Well and Do Good: Invest in Local Businesses

When it comes to my money, I often feel like I have to choose between "doing good" -- that is, using it to improve the world by, say, donating to charity -- and "doing well" -- deploying it to earn me more money, say, by buying stock. But that's not necessarily true. More and more, we have options to achieve both simultaneously, and I don't just mean by buying low-energy light bulbs -- though that's good too, of course!

According to Amy Cortese, author of Locavesting: The Revolution in Local Investing and How to Profit From It, we can put our dollars to good use not simply by shopping at locally-owned businesses, but also by actually helping to finance them. As Cortese explains in her book, when you invest in a small business, your money strengthens the community in all sorts of way beyond that initial investment. Specifically, locally-owned businesses usually create local job, whereas larger corporations often outsource jobs over seas. And while big companies routinely use armies of high-priced accountants and lawyers to wiggle their way out of paying taxes, small businesses just have to fork over the funds. (According to the Government Accountability Office, in 2005, for example, 25% of the largest American companies didn't pay one red cent in federal income taxes on more than $1 trillion -- yes, with a "T" -- in revenue).

With that in mind, small-time entrepreneurs and small-time investors are joining forces to finance these local businesses. In Michigan, nine police officers banded together to buy a 111-year old bakery that was on the verge of closing, not only saving the institution but also helping to revitalize its neighborhood. In Wisconsin, the Organic Valley dairy cooperative raised funds from individuals who receive a 6% annual return.

To learn more about this growing trend, we spoke with Cortese, and also visited Brooklyn-based cafe Egg, where owner George Weld is successfully employing community financing, and the Greenlight Bookstore, which secured $70,000 from dozens of neighborhood investors, turned a profit in its first year, and now offers a competitive return to its backers.