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US entrepreneurs turn to microfinance

Posted by: John Tozzi on October 8, 2008

We’ve written about Kiva, the microfinance site that connects lenders with entrepreneurs in the developing world who need small loans. But it looks like US entrepreneurs are increasingly turning to microloans as well, particularly now, as banks tighten lending standards.

To be sure, microlending is a tiny, tiny piece of small business credit in the US. Microlenders tend to be small nonprofits, and all their loans combined probably wouldn’t be a blip on the portfolios of one of the big banks. That said, there’s some anecdotal evidence that it’s a growing source of credit for some very small businesses locked out of the conventional credit market.

Last week I spoke with ACCION USA’s Laura Kozien, who said that the organization is seeing more borrowers with FICO scores between 650 and 750, which is good credit. “We’ve really noticed a lot of people who formerly would have qualified at a bank,” Kozien told me. ACCION USA’s loan volume for June, July, and August was $1.45 million disbursed in 228 loans, compared to $1.2 million in 207 loans for the prior three months, so again, these are small amounts, but growing.

Demand for microloans in the US has jumped in the past year, according to Sara Ignas of the Association for Enterprise Opportunity, a trade group for microlenders and microenterprises. She cites the example of a trucking company in New York, turned down for a vehicle loan to buy another truck, that got a $35,000 loan from ACCION New York.

The numbers are small but the trend is interesting. Microlenders say they exist to serve those who aren’t served by banks. That has long meant people with poor credit, or not enough collateral, or people in low-income communities where banks don’t have much of a presence. But now that we’re seeing dramatic changes in the banking sector and a tightening of credit, microloans may become a mainstream financing option for very small businesses.

Reader Comments

Rosanne Ferreri-Feske

February 25, 2009 3:04 PM

I quite agree.

Women are turning to small micro-loans for new start-up funds, rather than tapping their personal credit, or the traditional bank loan with tons of strings attached (especially in today's banking quandry). Women have less collateral to impress a bank with because they still (unfortunately) make 77 cents for every dollar earned by a man!

With women starting a majority of new businesses in the U.S., it would be wise for all financial industries to target and assist women-owned businesses, don't you think?

After all, we do make 83% of all consumer purchases, reader!

Catalyst for change,
Rosanne Ferreri-Feske, CEO

The New Tennessee Woman

The New U.S. Woman

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What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

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