Microloans Can be One Avenue for Early Funding

For people struggling to get a small business off the ground and lacking the right credit for traditional loans, there is the possible assistance of a federally assisted microloan.

The Small Business Administration itself doesn’t loan the money, but it helps make microloans available through nonprofit, community-based organizations experienced in lending and helping fledgling businesses. Loans may come with training designed to help you succeed.

Here are the basics, according to the U.S. Small Business Administration:

• The maximum microloan is $50,000, and the average microloan is about $13,000.


• The SBA works with intermediary lenders that are nonprofit organizations.


• The loan money cannot be used to pay off debts or for real estate. It can be used for capital, inventory, furniture, equipment or machinery.


• The maximum amount of time to pay off a microloan is six years. Repayment plans and interest rates vary.

As with any high-minded concept, there are critics and supporters. Here’s how Nicholas Kristof broke it down with three economics professors for The New York Times in 2009:

Their take on the good: “Many see microcredit as much more than a financial instrument: It has been suggested that it has the potential to be entirely transformative. There is an influential view that argues that, by putting more spending power in the hands of poor families, and, perhaps more importantly, in the hands of women, microcredit can expand investment in child health and education, empower women and reduce discrimination against them.”

And then here’s their take on the bad: “There are, of course, others who are skeptical or even hostile. They see [microfinance institutions] as old-fashioned money-lenders, preying on the inability of people to resist the temptation of a new loan. One self-described expert, in a recent letter to the Financial Times, goes as far as to suggest that microcredit leads to the “death of the local economy.”

Beginnings in Bangladesh

The concept of microlending — and its “transformative potential” as that story put it — goes well beyond American borders. The most visible proponent is Muhammad Yunus, a pioneer in the field. He founded the Grameen Bank in Bangladesh in 1983, which is described on Yunus’ website: “Grameen Bank, based on the belief that credit is a basic human right, not the privilege of a fortunate few, now provides over $2.5 billion of microloans to more than two million families in rural Bangladesh.”

Yunus has been awarded the Nobel Peace Prize and the Congressional Gold Medal for his efforts. Just in the past few months, he spoke at the Micro-credit Summit in the Philippines, the One Young World Summit in South Africa and at the Global Citizen Festival in New York, sharing the stage with Bono, Alicia Keys and Stevie Wonder.

In an April interview with The New York Times, Yunus described how the concept can help those in need of assistance to escape poverty.

“Microcredit has shown how you can reach out to people that conventional banking cannot. It has demonstrated that it’s a doable proposition. When we designed microcredit, the purpose was to help people get out of poverty, but some people moved away from that motivation. Grameen is still the same. It reaches out to the poorest — the women — and has demonstrated that despite disasters it can work.”

Yunus told the Times that he began his foray into microlending by jumping “at what I felt was right.”

“I was just a university teacher. I had no business getting involved with the poor people in the village next door,” he said. “But I jumped in at solving the problem. I had no idea if it was going to work or not. I wasn’t worried about being a failure. I started lending money from out of my own pocket. And the whole world was telling me that it won’t work. It’s a utopian idea; it won’t survive long. But I didn’t listen to them. I listened to myself. That I think is very important. And I stayed on my course.”

via Business 2 Community http://www.business2community.com/finance/microloans-can-one-avenue-early-funding-0665654?utm_source=rss&utm_medium=rss&utm_campaign=microloans-can-one-avenue-early-funding