2009 Small Business Guide
small business
Small-business microlending on the rise

Microlending is on the rise as more people start up their own businesses and banks cut back on their lending.

Microlenders are generally nonprofit-based community organizations offering loans between $500 and $35,000. Interest rates on the loans range from 9 percent to 14 percent, and their duration can span anywhere from six months to six years, with most of them closer to the short end of that range.

7 steps to take first

There are some steps you can take before asking for a loan. The microlenders you choose in the final step may be able to assist you with getting the information you need.
  1. Put together a business plan that includes an analysis of your market and its competitors.
  2. Update your resume and obtain the resumes of other senior managers.
  3. Pull your business and personal tax returns for the last three years.
  4. Provide revenue, cash flow and profit expectations for the next three years with thorough explanation.
  5. If you have an existing business, assemble your financial statements for the last three years.
  6. Prepare as detailed an explanation as possible for why you need the loan and how it will help your business prosper.
  7. Identify microlenders in your area. You can find them at The Small Business Administration, or SBA, and at Microenterprise.

Tremendous demand

There are no official statistics for microlending, but a study from the Opportunity Finance Network, which surveyed 118 of the nation's 260 microlenders, showed that 63 percent reported an increase in applications for microloans during the fourth quarter, and 48 percent actually originated more loans.

The sagging economy explains much of the growth in microlending. Bleak job prospects have inspired many people to start their own businesses or expand ones they may have begun in their spare time.

And with banks trimming their lending activity across the board, both long-standing small businesses and new enterprises are finding it difficult to borrow from traditional banks.

"We're absolutely seeing growth," says Wendy Baumann, president of the Wisconsin Women's Business Initiative Corp., a Milwaukee microlender, which serves men as well.

"There's growth in loan referrals from banks (as they cut back lending) and people off the street," she says. "People are getting laid off or worried about it and looking at entrepreneurial opportunities -- part-time consulting or maybe even full-time self-employment."

Some entrepreneurs who have been in business for years are seeing relationships with their banks deteriorate. "And now they are looking at microlenders to fill some of that void," says Mark Quinn, executive director of the Greater Newark Business Development Consortium, a New Jersey microlender.

Baumann reports a 15 percent increase in request for loans at her organization from a year ago. Quinn sees an even steeper rise of more than 50 percent. "There's a tremendous demand for capital," he says.

Ron Hutcheson, CEO of Smart Funding Solutions in Kennesaw, Ga., has benefited from a microloan he obtained earlier this year from the Atlanta Micro Fund. Hutcheson's company is a broker for businesses that seek to exchange their credit card receivables for cash from merchant cash advance providers.

He wanted to implement an Internet marketing campaign to attract more vendors to his business. A marketer offered Hutcheson a campaign at a discount -- provided he paid for it upfront.

So he sought some cash to finance the campaign. Hutcheson says a bank loan wasn't an option for him because without tangible assets to offer as collateral, banks have no interest in lending to him. The loan from Atlanta Micro Fund worked out perfectly, he says.


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