There was a time when the only mention of a micro loan was in reference to a community development program in a far away land. That’s not the case any more. Non-profits saw a need in the United States and now offer low- and no-interest loans to small businesses all across the country. The SBA identifies any loan under $50,000 as a microloan, but many of these loans are in the $5,000 to $10,000 range.
In addition to lenders, cities and other community groups sometimes offer no- or low-interest loans within redevelopment districts to encourage businesses to do such things as improve the façade of their storefront, improve the structural infrastructure of their place of business, or create jobs. Some non-profit lenders have a mission-driven focus and target small businesses with the potential to help local communities grow.
What Type of Businesses Use Microloans?
Stacey Sanchez, of San Diego-based non-profit CDC Small Business Finance, describes the average small business who utilizes this type of financing: “We work with many different businesses. Restaurants, small merchants, and other businesses the average person might associate with Main Street. We help a lot of startups get off the ground as well as some businesses that might have been around for a while, but don’t need a lot of capital. Many businesses could be a fit for the microloan program depending upon the nature and size of the business, and where it’s located.”
Justin Renfro of Kiva Zip adds this:
“A borrower who might be looking for $3,000 or $5,000 would probably be pushed into a credit card or turned away entirely from their local bank. A loan that small just isn’t what the bank wants to deal with. However, that very small amount of capital can have a big impact in the right hands. Let me give you an example.
“An entrepreneur in Arkansas was making cheese out of the kitchen of his church. He only produced a few gallons every week, but his friends and other customers loved what he was doing. His cheeses was so popular, he wanted to take what had been a hobby and turn it into a business—but he didn’t have the capital to buy the equipment necessary to increase production.
“He didn’t need much capital. He wanted to buy a 500-gallon cheese vat, which would grow his production capacity by about 100X. The loan he used to buy the bigger vat has helped Kurt Walker Cheese become the biggest cheese manufacturer in Arkansas. A little bit of capital with a very big result.
“I could share hundreds of stories like this. It doesn’t always take a lot of money to grow a healthy, thriving business.”
Many of the businesses that find success with non-profit lenders are some of the very smallest small businesses and the micro-loan amounts and terms are often a perfect fit for businesses that don’t have large capital needs. In other words, many businesses, that don’t need a lot of money to create a big impact, can use a micro loan to fuel growth initiatives or get their businesses off the ground.
What’s It Like to Work With a Non-Profit Micro Lender?
It’s important to realize that all non-profit lenders are not the same. CDC Small Business Finance, for example, works within the SBA’s micro loan program and will loan from $5,000 to $50,000. Kiva Zip uses a hybrid crowd-based model and makes loans of $5,000 to $10,000—so it’s important to find the right non-profit to work with.
With that in mind, don’t be surprised to find that some non-profits take a more traditional approach to working with a small business than others. What’s more, regardless of the lender you choose, many of these lenders take a very hands-on approach when working with borrowers and offer a lot of mentoring and advice along with the funds.
You should expect that each non-profit will have different lending requirements. Depending upon the lender, it’s possible to borrow to meet working capital needs, ramp up a marketing campaign, fuel a growth projects, or meet other similar business needs.
As with other lenders, if your business has sufficient cash flow to support a loan payment, you haven’t declared bankruptcy in the past 24 months, and are current with your personal obligations like your rent or a mortgage for the last year, you may qualify.
Additionally, other non-profit organizations, that are not lenders, serve the small business community and offer funding advice. The Association for Enterprise Opportunity (AEO) and SCORE are two good options. And, in addition to their micro loan program, the SBA offers a advice for the businesses in this category and works with CDFIs designed to help small businesses.
The smallest small businesses aren’t always served well by traditional lenders—making non-profit lenders and important part of the small business lending landscape.Loans from $5,000 to $500,000—Apply Now