Beyond Bank Loans: Can a Microlender Help Your Small Business?

Linda Childers

When Rob Knauf, co-owner of a video production company based in San Diego, Calif., was seeking to expand his business, he turned to Accion a small business lender that specializes in microloans.

“My business partner, Andrew Rowley, and I wanted to upgrade our equipment and add a sales/marketing person to our existing staff,” Knauf says. “I had been taking some business classes in San Diego, and in my last class, we were asked to write a business plan. My professor thought the plan was solid and that we would be a good candidate for an Accion microloan.”

What is a Micro Loan?

While a variety of funding sources exist for small businesses, many are finding success through microloans. These programs differ from bank loans in that they are much smaller in value, usually about $5,000, and they don’t screen applicants based on credit rating or collateral. With microloans, the lenders are more concerned with the strength of the business idea, and whether the entrepreneur has a viable business plan.

In addition to financing, many microlenders also offer small business owners the opportunity to learn about marketing, finance, accounting, and other practices that can help their company to grow and succeed.

Could a Microloan Be Right For Your Business?

As a small business owner, you might be contemplating the best way to obtain funding in order to grow your business. Borrowing is one of the most common sources of funding for small businesses, and those lenders of capital can range from friends and family members to angel investors and small business loans.

When Microloans Are the Best Option

Microloans are typically offered to small businesses with capital needs of less than $50,000. Any business can apply for a microloan, but the best business candidates are often those:

  • with low cash reserves or poor or non-existent credit
  • who have launched their business in a rural or disadvantaged communities
  • are either woman- or veteran-owned or a green business

For small businesses, microlenders provide a good option when seeking loans to purchase equipment or to service a contract.  They also seen as a more personalized approach to traditional bank loans and offer a respectable alternative to approaching friends or family for help

Microloans Help Small Businesses Achieve Big Goals

Small businesses interested in obtaining microloans, can apply through the Small Business Administration (SBA) Microloan Program, and a few hundred other microlenders, typically community-based nonprofits, located throughout the country.

Opportunity Fund, a California-based microlender, says that although the state is home to 3.4 million small businesses, approximately 45% of these companies fail because they are unable to secure to get the loans they need.  Traditional banks may decline start-ups lacking a proven track record, or who work in the restaurant trade, an industry that that many banks classify as high-risk borrowers.

Laura Kozien, Senior Director, Communications and Marketing, for Accion’s U.S. Network, says that her company partners with a variety of small businesses including start-ups, green businesses, food and beverage and minority-owned businesses. Many of their loan recipients have been turned down for traditional bank loans due to bad credit.

“At Accion, we look at more than just credit scores,” Kozien says. “We also examine the cash flow of the small business, their experience, and the affect that the business is going to have on both their employees and the community.”

Small businesses can apply online for Accion loans averaging around $10,000 for first-time customers, and up to $50,000 for established, profitable businesses. And these loans are offered with competitive interest rates.

A Personalized Approach to Raising Capital and Rebuilding Credit

Along with the host of resources designed to  give their clients the knowledge and capabilities they need to run a successful business, many microlenders will also provide help to repair their credit rating. “Since we report to all three credit bureaus, we can help businesses to rebuild their credit,” Kozien says. “And if a small business is having problems repaying the loan, our in-house collection agency, is going to see if there is anything they can do to help the business get back on track.”

So when asked about his experience securing a microloan for Rowlberto Productions,  Kaupf says he was impressed by how seamless the microloan approval process was for his company.

“I really like the idea of working with a non-profit lender,” Kaupf says. “They seemed genuinely interested in helping my business to succeed, rather than just offering a loan where they would accrue interest charges.”


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