More Microloans for Small Businesses

With small business lending by banks and other traditional money sources still tight, microlenders are picking up some of the slack by providing loans averaging about $7,000 to U.S. entrepreneurs struggling to start and maintain a business.

Though microloans to U.S. businesses by organizations that have largely focused on lending in developing countries are just a tiny fraction of their overall business, they’re sure to grow as the lenders expand their operations in the U.S.

Among international microlenders reaching out to small U.S. businesses are Kiva, a San Francisco-based outfit founded in 2005, and Grameen America, an offshoot of Grameen Bank, which was founded in Bangladesh by Muhammad Yunus, who won the 2006 Nobel Peace Prize for popularizing microcredit.

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Kiva, which first brought its microlending programs to the U.S. last year, is targeting small businesses hit hard by the BP oil spill and other disasters along the Gulf Coast in recent years.

It’s hitting the ground running by partnering with organizations such as ACCION USA and Opportunity Fund -- microlenders that have long been working in the U.S. and are familiar with U.S. lending infrastructure. Moreover, it’s armed with a $1-million grant from Visa, the credit card company, to be used for making microloans.

Grameen America opened for business in New York City during the recession and made nearly 200 loans in its first three months. Convinced of a large demand, it has since opened another branch in Omaha, Neb. It also plans to open additional lending centers in California, Florida, Georgia, Massachusetts, North Carolina, New Jersey and Washington, D.C.

Grateful recipients include a couple starting a carpet cleaning business in El Paso, Texas, an auto body shop owner in Elsa, Texas, and the owner of a catering company in New York City.

A $6,750 loan from Kiva is helping Abel Reyes and his wife buy a van and equipment from a friend to start their carpet cleaning business. The couple have already hired one employee and hope to hire additional workers once the business takes off.

After getting turned down for traditional loans to repair the roof of his auto body shop, which was damaged by Hurricane Dolly in 2008, the owner, Simon Franca, received a loan from Kiva, allowing him to fix the roof. He’s now poised to receive a second loan of $5,000 to help his business get through a slow business period.

And Nicole Gates used a $1,500 loan from Grameen America to expand her catering company in New York City’s Brooklyn borough. The money helped her buy tents, tables and grilling equipment that lets her serve up her soul food creations at area street fairs. “Within two weeks I had money in my pocket and was on the move…even that little bit of money can put you over the top,” Gates says.

“Microfinance in the U.S. isn’t about poverty, it’s about creating opportunity -- about economic development,” explains Libby Parsons, a Kiva coordinator at ACCION-Texas, a branch of ACCION USA.

Borrowing requirements vary by microlender and are based on individual consultations. Small business owners and budding entrepreneurs looking for a hand should contact Kiva, Grameen America or other microfinance institutions to see if, and how, they can qualify. Interest rates charged on the loans also vary from case to case, but can run as high as three to five percentage points above the prime rate in the U.S. if the business risk is especially great.

Still, it’s often far easier for small businesses to be approved by microfinance institutions, especially after they have been turned down by large banks and the government.