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Intro to SBA Microloans

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Want to start a small business? One that doesn’t need $750,000? Or perhaps your credit is less than perfect. The SBA's Microloan program may be just what you need!

What is a microenterprise? It’s usually a business with five or less employees, which requires $25,000 or less in start up capital.

This SBA program makes funds available to nonprofit intermediaries, who then loan eligible borrowers from under $100 to a maximum of $25,000. The average loan is around $10,000 and the longest time it can be written for is six years. SBA Microloan Intermediaries can’t loan to you if you’re delinquent on your taxes or have had a recent bankruptcy, but they will help you qualify (which may take a while) if you’ve made some payments late or have otherwise spotty credit. Work with them, it can work for you.

Of course, the usual small business requirements DO apply – this business must be able to pay back the loan from business operations. Assets bought with the microloan become collateral for the loan itself and, usually, the business owner must also personally guarantee the loan as well.

The Association for Enterprise Opportunity (AEO) is also involved with microloans, with an average of $12,000 per loan to companies that have less than five employees. According to CNNFN, 2.3 million entrepreneurs in the U.S. alone could benefit from this program.

Many different types of companies have received microenterprise loans. Some are in:

• Specialty foods
• Jewelry
• Arts, crafts and gifts
• Clothing and textiles
• Furniture
• Computer Technology
• Daycare
• Environmental products and services

Members of the AEO concentrate on helping provide skills as well as cash for small business owners.

Training and Technical Assistance include information on:

• "How to Develop a Business Plan"
• "Assessing Entrepreneurial Readiness"
• "Types of Businesses"

Credit and Access to Credit

Microenterprise assistance offers credit by becoming certified as an intermediary so that they can make direct loans. They can also develop funding through grants and as part of a legislative program or through gifts from private industry. Important partners include:

• Banks
• Credit Unions
• Other financial intermediaries providing loans and financial products for the small business

AEO also offers help in building the opportunity for small businesses to sell their products to new markets.

Want to find the intermediary who provides microloans in YOUR area? http://www.sba.gov/financing/microparticipants.html

Not inside the United States?

The Foundation for International Community Assistance (FINCA) made 120,000 loans in 15 companies during 1999 for a total of $40.8 million. They’ve got the experience to prove this works, they’ve been doing it since 1984. Their Village Banking groups, peer groups of 30 – 50 people in a poor village, get these services:

• Working capital loans to finance self-employment activities,
• An effective mechanism for promoting family savings; and
• A community-based system which provides mutual support and encourages self-worth.

http://www.villagebanking.org/ is the home page http://www.villagebanking.org/village.htm has got most of the answers on FINCA’s program that you could be looking for.

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