Microloans Can Keep Small Businesses Out of the Credit Crunch

A newly expanded program could help millions of Americans start their own small business or improve the one they have.

The initiative provides “microloans” of under $500 and up to $35,000 to startup, newly established or growing small businesses. Such companies are the No. 1 employer in the U.S., having generated 70 percent of new jobs annually over the past decade, and it is believed that bolstering their access to credit could be key to improving the economy as a whole.

Indeed, the Microloan Program, offered through the Small Business Administration (SBA), is a significant component of the American Recovery and Reinvestment Act of 2009. Expanding the program is meant to provide extra funding for SBA-backed microlenders across the country, providing enough for $50 million in new loans.

Improving Access
While the Microloan Program is open to all entrepreneurs, the initiative especially supports underserved markets, including borrowers with little or no credit history, low-income borrowers, and women and minority entrepreneurs. In the past, these groups have had difficulty qualifying for conventional loans or other larger, SBA-guaranteed loans. To maximize chances for their business success, all borrowers must participate in training, classroom or one-to-one counseling and other forms of technical assistance.

How To Apply
The first step for those considering a microloan is to develop a business plan or update the one they have. You can find a number of online resources to help at www.sba.gov. They include an assessment tool to help determine if you are ready to start a small business, a tutorial on developing a business plan, and training courses on “How to Prepare a Loan Package.”

Next, visit the site to find an approved microlender in your area. The maximum term allowed on a microloan is six years. However, terms vary according to the size of the loan, the planned use of funds, the requirement of the lender and the needs of the small-business owner. Additionally, lenders typically require some type of collateral and the personal guarantee of the business owner to repay the loan.

Interest rates on the loans vary but typically fall between 8 and 9 percent. Rates are negotiated between the borrower and microlender.

About The Recovery Act
The American Recovery and Reinvestment Act of 2009 provides the SBA with program tools that offer new economic incentives to small businesses and lenders alike, all aimed at growing the economy through job creation, re-starting lending and investing in small business.

In addition to expanding access to microloans, the act temporarily eliminated certain loan fees and offers deferred loan payments of up to $35,000 through its America’s Recovery Capital (ARC) loan program, among other initiatives. For more tips and information, visit www.sba.gov.

Related Posts:

• SBA 504 Loan Fee Relief to Continue if Administrator Mills Prevails
• Small Business Owners Get Stimulating Real Estate News