The idea of micro lending, sometimes called micro-finance, is more typically associated with loans in amounts as little as $25, disbursed to impoverished people in developing countries, ideally helping them to generate their own income to climb out of poverty.
But more recently, microcredit has become a mainstream practice in the U.S., and even though the average Small Business Administration (SBA) microloan size is $13,000, the SBA's program shares a similar mission as traditional microloan programs.
While the microloan program is open to all entrepreneurs, the program especially supports underserved markets. This includes borrowers with little or no credit history, low-income borrowers, and women and minority entrepreneurs who generally don't qualify for conventional loans or larger SBA guaranteed loans, said Pravina Raghavan, director of the SBA's New York District Office
Most banks, large or small, do not bother granting business loans of less than $50,000 because there’s not enough profit to balance the risk. By contrast, microfinance programs in the United States typically lend $35,000 or less to small businesses with five or fewer employees. They charge more than traditional banks, of course, with interest rates ranging from 5 to 18 percent.
When President Obama signed the American Recovery and Reinvestment Act into law in February 2009 to create jobs and promote spending, the law included $56.1 million for microloans for small businesses, to be doled out through the SBA through September.
Targeted toward start-up, newly-established, or growing small businesses, the microloans are short-term loans up to $35,000 each for working capital or inventory and equipment purchases. The intermediary lenders who distribute the loans can choose to lend more than that limit.
Read the full article of Microloans help small businesses on dLoewi Consulting.
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