Microloans provide financing opportunities for businesses that don't meet the lending criteria of commercial lenders.
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Given the recent tightening of lending criteria throughout the commercial lending industry, more and more entrepreneurs are turning to microloans as a source of financing.
The microlending concept has been around since 1976. It was pioneered by Dr. Muhammed Yunus' work with the Grammeen Bank in Bangladesh. Grameen was founded on the idea of providing very small loans to entrepreneurs who lack adequate collateral or credit history. With more than 99% of Grameen's loans paid on time, the microlending concept has proven itself to be a win-win situation for economically-challenged businesses and their lending partners.
Over the years, the idea has migrated to the US and now domestic entrepreneurs can also benefit from microloans through a variety of lending sources.
Accion USA has loaned $154 million to more than 16,000 entrepreneurs since 1991. They are known for lending to US-based small businesses that don't have access to traditional bank credit. Accion loans range from $500 to $25,000 and feature competitive interest rates, a streamlined application process, and a repayment term of up to 60 months.
CDFIs (Community Development Financial Institutions) are available in all 50 states and offer microloans for business startups in rural and urban low-income communities. The details vary from one CDFI to the next, but they all generally fit the microlending mold of small loans with relatively short repayment terms. To find a CDFI in your state, use the CDFI State Locator.
From time to time, the Small Business Adminstration offers a microloan program that provides financing for working capital or the purchase of inventory, supplies, furniture, fixtures, machinery and/or equipment. The SBAs maximum loan amount is $35k and they often make provisions for alternative forms of collateral.
Kiva is a legend in microfinance. Although they are most well-known for making loans to entrepreneurs in developing countries, they also make microloans to US-based small business owners based on the recognition that the US also has disadvantaged business owners. Unlike other microloan programs, Kiva doesn't lend directly to businesses, preferring instead to work through community organizations or "field partners".