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.
American borrowers looking for small business loans can apply through local non-profit agencies that manage microloans for the Small Business Administration. Refer to sba.gov/idc/groups/public/documents/sba_homepage/serv_microloan_intermediary.pdf to find a listing of intermediary agencies. By law, agencies not only fund loans, but also have to provide training and information to assist small business owners. While a strong credit history is often not required, you should have a well thought out business plan and be prepared to offer business financial history or personal tax returns if you are just starting out. Loan terms vary, with a maximum of 6 years for repayment. Interest rates may depend upon a number of factors, but are somewhat higher than typical small business loans.
Microlending, like other small scale lending in today’s world, is a new approach to a struggling economy. Making opportunities for those who lack access to traditional credit can allow new businesses to flourish, improving both the individual’s well being and their local economy. If you are trying to start a business, consider applying for one of these loans for for the funding you need. Those with resources may want to consider joining Kiva.org as a lender, whether you have $25.00 to loan or substantially more.