Microloans are small business loans, made primarily to those living in poverty without other resources by non-profit organizations including the well known Kiva.org. The term is also used to refer to small business loans funded by the Small Business administration and overseen by a non-profit agency. The limit on these SBA loans is $35,000; however, $10,500 is the average amount loaned. While microloans were initially developed to assist business owners without access to traditional lenders, in today’s challenging economy more and more small businesses are turning toward microloans.
One of the best known microloan organizations is Kiva.org at kiva.org. Kiva allows individuals to make microloans in amounts as small as $25.00 to struggling individuals without access to traditional lenders. The microlending relationship has been a successful one, with more lenders and borrowers available in some cases. Loan applicants work with organizations in their local areas to qualify for loans and default rates are remarkably low (2%). While Kiva has worked with the third world, expansion into the US market has been announced in 2009. Loan limits in Africa and elsewhere are set at $1,200 but limits in the US will be $10,000. Just as Kiva’s loans target the poor in underdeveloped countries, they will also target those without access to traditional credit and finance in the United States.