Microlending is the practice of providing small loans to low-income people to start small businesses. Grameen Bank, founded in Bangladesh in 1983, was a pioneer in microfinance, generally providing small loans to the rural poor. While the practice has become extremely popular globally, microfinance has only recently joined the arsenal of financing options for small business owners and would-be entrepreneurs in the U.S.
Microlending in the United States got an official boost in 2009, with the passage of American Recovery and Reinvestment Act. Through ARRA, the Small Business Administration received $54 million specifically for its Microloan Program, which distributes loans under $50,000. We have recently added the locations of organizations participating in the Microloan Program to PolicyMap.
SBA Microloans are distributed through a handful of nonprofit intermediaries who have experience in lending and technical assistance to small businesses. According to the SBA, microloans can be used for working capital, inventory, supplies, furniture, fixtures, machinery or equipment needed for a small business. The average SBA microloan is for $13,000 and interest rates are typically between 8 and 13 percent. Not all microlending that takes place in the U.S. is funded through the SBA, however. Participating intermediaries may operate their own loan funds, and organizations such as Kiva rely on crowd-funding mechanisms for seed money and do not need to conform to SBA’s loan regulations.
SBA microlenders are located throughout the country. Many of them provide financing to entrepreneurs for whom traditional bank financing is not an option, especially in areas where business startup costs are prohibitively high. The map below shows the percent of “young” businesses – those that have been in operation for less than one year – and the locations of SBA microlenders in the Bay Area. While some areas have a relatively high number of startup firms, Oakland, San Jose, and parts of San Francisco have relatively few compared to all businesses.
The microfinance institutions located in these areas help local low- and moderate-income people access capital and build good credit history, with more favorable loan rates than a typical credit card. You can find locations of SBA intermediary microloan providers on PolicyMap in the Lending tab.