As the economy continues to sputter along, the sources of traditional small business financing have been quickly drying up. Collectively, banks and commercial lenders are requiring more collateral while simultaneously approving smaller loan amounts. And this is coming as other personal financing products, such as home equity loans, are getting harder to come by. As a result, many new and growing small businesses have been forced to do a lot of scrambling about in search of financial support.
One promising ray of hope for small businesses in this dismal environment is the SBA-based microloan program. Based on a financing system that was designed to help small businesses in Third World countries, the SBA started this program in the 1992 with the goal of offering accessible financial assistance and counseling to new and growing small businesses. There are currently several nonprofit, community-based intermediaries funded by the SBA. These microlenders provide small business loans as well as training and technical assistance to its borrowers.
Now, the economic stimulus bill recently approved on Capital Hill provides a $30 million boost to the SBA’s microloan program. This is in addition to the $20 million already earmarked for microloans.
Though loans from microlenders can range from less than $100 to as much as $35,000, with a term as long as six years, the average size of a microloan is $13,000 with an average loan maturity of 42 months. The interest rate can be negotiable, but it tends to be higher than it is for standard business loans (usually between 8%-13%). A microlender can also serve as a subordinate lender to banks, sometimes enabling the loan to be increased to $50,000.
As the recession continues to deepen, microlenders across the country are experiencing an increase in inquiries from would-be entrepreneurs and small business owners, including entrepreneurs starting “high risk” ventures and established businesses that have bad credit or a poor sales history. Most applicants are drawn to the availability of financing, the easy approval process, the personal touch that most microlenders have to offer, as well as the free business training and technical assistance.
If you are in need of a small loan to help get your business off the ground or to expand an existing business, this program is definitely worth checking out. For help finding a microloan lender, the SBA provides a listing of all the intermediaries that are part of the SBA’s microloan program. There are microlenders located in almost every state.