Five Microfinance Options for Americans

In Reaching for Economies of Scale we discussed how small businesses might band together and share resources to cut costs and maximize profits. But  in order for a system of small businesses to thrive each one must first begin. It’s old news that about 80 percent of small businesses fail. Less often do we hear about the microfinance options that may have helped them stay afloat. Microfinance Options for Americans

Developing countries have been helped tremendously by systems of microfinance. Communities of men, and more often women, can lend each other money and resources in order to get their various small enterprises going. As they pay each other back and make profit, they can take their profits to the bank. Savings allows a measure of financial security and stability previously unknown to such impoverished comnunities. Virginia’s own Virginia Tech created a game in 2013 that teaches illiterate or semiliterate women how to cooperate in a microfinance community.

Yet microfinance is not limited to developing countries. Any community can work together to microfinance their small industries. In America, where such communities are less common, there are still several microfinance options:

  1. Grameen America: Grameen Bank and its founder, Muhammed Yunus, were awarded the Nobel Peace Prize in 2006, “for their efforts to create economic and social development from below.” In 2008 Grameen Bank expanded to the United States, beginning in New York City. In Grameen’s words, “Since opening, Grameen America has reached over 23,500 women in need and provided over 72,300 microloans.” Groups of five individuals, typically women, may apply for loans of up to $1,500 after they successfully complete a 5-day training course and settle on a viable business idea. Grameen America has its limits, however, for while its clients no longer struggle, they remain below the poverty line. Grameen America is not a depository institution, so its ability to help is limited.
  2. The U.S. Small Business Administration Microloan Program: This program provides up to $50,000 in loans for small businesses in America. (The average loan is about 13,000.) The funds for this project are provided by the U.S. SBA to intermediary lenders, such as these lenders near Blacksburg, VA. Each of these lenders has its own requirements for eligible borrowers. “Generally, intermediaries require some type of collateral as well as the personal guarantee of the business owner.” There are also restrictions on what the loan can be used for. That is, loans cannot be used to pay existing debts or purchase real estate. Interest rates vary between 8 and 13%. For Virginia residents, there is an office in Richmond that can help with loan applications.
  3. Kiva.org: It’s a pleasure to introduce the first person-to-person lending site. The site has recently expanded to allow individuals around the world to fund entrepreneurs with loans as small as $25 each. Cumulatively, these loans can make a great difference in the lives of new small business owners. The progress of each loan is visibly tracked, from its initial funding to repayment. Once they are repayed, lenders can either withdraw their funds or re-invest in other entrepreneurs on the site. This press release from Kiva.org informs us that, “In May alone, Kiva.org users loaned $4.6 million to entrepreneurs, a 51 percent year-over-year increase and a record month for Kiva.org. Over $75 million has been loaned through Kiva.org to support more than 180,000 individuals from 44 developing countries.” Kiva.org has partnered with two existing U.S. microfinance institutions: ACCION USA, and Opportunity Fund. Opportunity Fund focuses on California residents, while ACCION USA serves impoverished citizens across the country.
  4. ACCION USA: This institution provides loans of up to $50,000 to small business owners, as well as financial education. ACCION USA focuses on providing loans to individuals who, for various reasons, cannot apply for loans through a bank. 
  5. Opportunity FundSmall business owners in California have a terrific borrowing option in the Opportunity Fund. This organization  conducted a survey in collaboration with ACCION U.S. Network to evaluate the effectiveness of their program, and found that participants had
    • a 55% average increase in income earned through the business by the owner.
    • 4.9 jobs supported.
    • 2.9 jobs created/retained per loan.
    • a 95% businesses survival rate.

If Opportunity Fund’s statistics are representative of some of the general benefits of microfinance in the U.S., it is certainly fortunate that microfinance options are not limited to developing countries. In the midst of an economic recession, many individuals do not have the credit history or the established business to apply for a bank loan. Smaller loans can help bridge this gap, allowing individuals to build credit and begin small businesses in spite of poverty. It is possible that microfinance options such as Kiva.org will even create communities of person-to-person lenders. With microfinance, small businesses may be able to achieve economies of scale and stability that were previously out of reach.

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About Laurel Sindewald

Laurel is an alumna of Warren Wilson College with a BS in Conservation Biology and a BA in Philosophy. She is a writer for Rural System, Inc.

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