Monday, April 2, 2012

Microlenders only source of funding for many small business owners

Prospective business owners are always concerned about where they will find money to start their business. Consider this...

Several years ago after Merlinda Sedillo Welch's chile and salsa both won blue ribbons at the New Mexico State Fair, she decided to turn her grandmother's secret recipe into a business venture. But when she approached the bank where she had maintained all her financial relationships for close to twenty-five years with a loan request, they turned her down flat.

"I still remember how devastated I was after that experience," Ms Sedillo Welch said during a recent telephone interview. Today, Merlinda's chile and salsa products are sold in many stores throughout Albuquerque, New Mexico and via her web site. How did she do it?

After the bank turned her down, she contacted Accion New Mexico, a micro-lender that makes funds available to entrepreneurs in several cities in the United States and Latin America. Within two days of meeting with Accion loan officers, she had the $500 she needed to get the business off the ground and hasn't looked back since.

Her story is not unusual. For many small business owners, micro lenders are the only hope for funding. Traditional lenders often do not have the time or inclination to service small loan requests, low income, older and/or minority applicants.

The Small Business Administration's (SBA) Microloan Program, originally authorized as part of the Commerce, Justice, State and Judiciary Appropriations Act of 1992, was made permanent in 1997 under the Small Business Reauthorization Act of 1997 ( PL.105-135). The program provides loan funding to many non-profit entities nationwide. They in turn act as intermediaries and provide short term, fixed rate loans to small and disadvantaged businesses in their operating area. Maximum loan amount is $35,000 and maximum loan term is six years.

Each micro-lender establishes it's own lending and credit criteria. According to a spokesperson from Accion New York, in making loan decisions, the applicant's good character and commitment to making the business a success is looked at more closely than the credit record. Similarly, at the Lower East Side Federal Credit Union in New York City, "the credit history of the business owner is very important, but does not by itself determine loan approval or denial" says a credit union spokesperson. In cases where an applicant has no credit, the credit union may request an alternative credit history such as rent and utility bills payments.

Some micro lenders require that loan applicants be in business for a period of time before requesting financing while others consider new business owners and provide help with business planning and referral to training programs, sometimes as a prerequisite to loan approval. All SBA intermediaries are required to provide some form of technical assistance.

Microenterprises are flourishing in America as a result of these programs. According to the Association for Enterprise Opportunity (AEO), the most popular microenterprise undertakings include: specialty foods, jewelry, arts & crafts, gifts, daycare centers, clothing, textiles, computer technology and furniture.

To find micro lenders in your area:

I. Search the Association for Enterprise Opportunity's list for microlenders. The Association for Enterprise Opportunity is a national association dedicated to micro enterprise development in the United States. Its members include many organizations that serve low income communities.

II.Contact your local credit unions to find out whether they offer microloans.

The National Federation of Community Development Credit Unions has a list of credit unions by state at

The National Credit Union Administration also has a searchable database here:

III. Check the SBA's site. They used to provide a list of Microloan lenders here:

Additional links to sites mentioned in this post:

Merlinda's Chile

Accion International, - one of the largest microlending programs in the United States lending in communities of greater New York City, Chicago, Boston, Atlanta, throughout Texas, New Mexico and in some areas in Latin America.

Lower East Side People's Federal Credit Union -a community development credit union on the lower east side of New York City. Membership is restricted to those living or working on the Lower East Side of New York City.

This article was written by Amanda M. Gladden and originally appeared here