In 2006, Bangladeshi economist Muhammad Yunus won the Nobel Peace Prize for his Grameen Bank and its small, collateral-free loans. Dr. Yunus developed the concept of microcredit, the extension of small loans to very small businesses. His first loan, in 1967, was $27 to a woman who made bamboo furniture.
Today in the U.S., most microloans are for less than $35,000, and most lenders require collateral. The loans are an important source of capital for startup, newly established, or growing small businesses.
f you want to apply for a microloan, there are two places to start your research: the U.S. Small Business Administration and the Association for Enterprise Opportunity.
U.S. Small Business Administration
The U.S. Small Business Administration (SBA) does not loan money, but it funds about 175 intermediaries, or nonprofit groups that offer business counseling and loans. The SBA lists these intermediaries on its web site. Visit
www.sba.gov, then click on Small Business Planner, then Finance Start-Up, then scroll down to Microloans.
The maximum loan amount is $35,000, and the average is $13,000. The loan term is up to six years. You submit the application to the local intermediary, which not only makes the decision to approve or decline the loan, but also offers you free business advice.
The interest rates are about 8 to 13 percent, and the lender will want collateral and a personal guarantee of the business owner. That means you are willing to be held responsible for the debt of the business. (If the business fails, you pay back the loan from your personal savings, or you put up your car as collateral, etc.)
The SBA has seen a decrease in federal funding since 2000. So in addition to the SBA’s intermediaries, there are other nonprofit groups that lend money that they receive from other sources.
