Need a small loan to start or expand a business -- a so-called "microloan?" If so, there's good news. Despite what you might have read lately, microloans of $500 to $50,000 are available through a variety of private sources, government programs and even non-profits. Some of them might even surprise you.
Keep in mind, however, that you'll need to qualify for the money, submit an application, have a sound business plan or idea, and -- gulp -- will have to pay back the money. Still, opportunities to secure micro financing for a business startup have broadened.
Here's where you'll find the money:
ACCION USA is a private non-profit that offers startup and expansion microloans of up to $50,000 to small business owners in the U.S., along with credit and business advice to small business owners who cannot access traditional credit. ACCION specializes in working with qualified small business owners who do not meet bank lending standards and offers loans for startups as well as loans for established businesses. The Web site has an online application and other helpful resources.
In addition to serving U.S. micro-entrepreneurs through ACCION USA, Boston-based ACCION partners with microfinance organizations throughout Latin America, the Caribbean, Asia and Africa. Since 1998, ACCION has made over $17.4 billion in microbusiness loans to over 6 million people worldwide.
Community Development Financial Institutions: About 1,000 CDFIs in all 50 states make microloans for business startups in low-wealth, low-income communities, serving both rural and urban areas. Use the handy CDFI State Locator at the non-profit CDFI Coalition website to find one near you. Some CDFI examples:
- The Utah Microenterprise Loan Fund, a certified CDFI, is making loans of up to $25,000. Their motto is "Building brighter futures through small business." A $10,000 micro enterprise loan from the Utah fund helped Somer Gardiner get her Salt Lake City yarn store, Soul Spun Yarn, off the ground.
- Enterprise Corporation of the Delta, a CDFI in Jackson, MS, has helped train or fund thousands of entrepreneurs in the Mississippi Delta region it serves. It helped back Computers, Inc., a small business owned by three women. Computers, Inc. installs custom equipment for schools and businesses.
- Self-Help, a CDFI in North Carolina, provides small business loans in several southeastern states and elsewhere around the country. Loans range from a few thousand dollars and up to start, buy or expand a business or non-profit.
U.S. Small Business Administration: Under its Microloan Program, the SBA makes funds available to a variety of non-profit community-based lenders or "intermediaries." Those lenders, in turn, make the microloans to eligible entrepreneurs. The average loan is about $13,000 and the range is typically between $5,000 and $50,000.
Valley Economic Development Center (VEDC) runs one such SBA microloan program that in late 2009 received a $2 million capital injection from U.S. Bank to expand its micro lending services in Southern California. In addition to providing loans, VEDC provides technical assistance to small companies. VEDC works with SCORE, the SBA and U.S. Bank branches to identify potential borrowers. Check the SBA's list of 165 micro lenders nationwide for one in your area.
Person-to-Person lending: This is also called peer-to-peer lending and thanks to tight-fisted traditional lenders and a group of websites that back it, it's a booming alternative to traditional loan sources. Several P2P lending websites have grown rapidly, connecting people who have money with people who need it, while helping structure and manage loans between them. The average loan made through a P2P site is about $5,000.
Top P2P lending sites include Prosper.com, Virgin Money US, Lending Club and RaiseCapital.com. Individual lender/investors compete with each to make loans to borrower's who have posted a loan request on the site. The better your credit rating and proposal, the lower you rate is likely to be. Here's a description of how it works at Prosper.com.
Count Me In, a non-profit organization, makes microloans to women entrepreneurs in all 50 states through its Micro to Millions Award program.