October 23, 2010 in Business

U.S. increasing microloans it offers to small businesses

Sharon Bernstein Los Angeles Times
 
Here and abroad

Microloans are also known to Americans as the incredibly tiny loans – as small as $50 – that investors make to people in developing countries.

In the United States, even the microloans are considerably larger than overseas, mostly because the costs of living and of setting up a business are so much higher here. The loans are made through not-for-profit community lenders, with money from the SBA. Along with each loan, borrowers receive training on how to develop and run their businesses.

LOS ANGELES – More accustomed to allocating money by the millions, the federal government is stepping up efforts to make loans as small as a few hundred dollars to some of the nation’s tiniest companies.

The goal is to create jobs, one little loan at a time.

“In this environment, every job is crucial,” said Eric Zarnikow, who helps run the Small Business Administration’s loan programs. For every loan, he says, 1  ½  jobs are created or retained.

Although it is known primarily for guaranteeing private loans for up to $5.5 million, the SBA microloan program also works through not-for-profit community lenders to make tiny loans directly to small businesses with federal money. Now that program is growing significantly.

Over the last 18 months, Congress has tripled the amount available for microloans to $75 million nationwide. This week, the SBA moved to funnel more of that money to the lenders that grant the loans and increased the maximum amount of the loans themselves. Borrowers can now get up to $50,000 at a time, up from $35,000 previously.

Microloan applicants often do not have the credit or collateral that would be required by a traditional bank, said Stacey Sanchez, who makes the tiny loans in California through the not-for-profit lender CDC Small Business Finance.

“There’s no one at a bank to understand that you may have been out of work – that’s not cost-effective for the banks,” she said. “You either have the credit score or that’s that.”

The government-funded loans still require an application and a sound business plan, she said, but the lenders can take time to really examine a firm’s prospects.

Recipients might not grow rich from their businesses, but they might earn a decent living, she said.

“I think it gives somebody an opportunity to be self-sufficient,” Sanchez said.


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