Microloan Sources for Small Startups
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 been told, microloans of $500 to $50,000 are available through a variety of government programs, as well as nonprofit and private sources. 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. Microloans are not grants. Lenders expect repayment, even though the amounts are relatively small.
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 nonprofit that offers startup and expansion microloans of up to $50,000 to small-business owners in the U.S. The Web site has an information video, a quick online application and other helpful resources. You can join their e-mail list or check out the ACCION USA Facebook page.
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 nonprofit CDFI Coalition Web site 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, Mississippi, 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 nonprofit.
U.S. Small Business Administration: Under its Microloan Program, the SBA makes funds available to a variety of nonprofit community-based lenders or “intermediaries.” Those lenders, in turn, make the microloans to eligible entrepreneurs. The average loan is about $13,000 and the maximum is $35,000. Check the SBA’s list of 165 micro lenders nationwide for one in your area.
Count Me In, a nonprofit organization, makes microloans to women entrepreneurs in all 50 states through its Micro to Millions Award program.
Family and friends: The largest single source of microloans for starting a small business in the U.S. is family and friends. Many big names started this way. Shipping giant UPS was launched when 19-year-old entrepreneur Jim Casey borrowed $100 from a friend nearly 100 years ago in Seattle. And Subway was born when teenager Fred DeLuca open a sandwich shop in 1965 with a $1,000 check from a family friend.
The tricky part is borrowing from family and friends without turning them into enemies. Try using an outside service such as Virgin Money that will prepare formal documents, create payment schedules and provide tax statements.
Daniel Kehrer is Editor and Director of Content Development at Business.com and writes the “What Works for Business” blog.
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