An answer to the small company loan crisis may be microloans. Until, now most people associated microloans with poor developing countries. But microlending is on the rise in the Americas as more smaller businesses are getting microloans when the bank says no.Congress made a halfhearted try to create a small business lending bill, but the belief that it died amid partisan backstabbing could mean continued good business for microlenders.
Microlending: U.S. joins the ranks of the third world
Microlending — making small loans, typically to the poor — has been one of one of the most effective means of financing growth in third world countries. Then the United States economy collapsed and recovery has been weak. The New York Times reports that tight credit and the recession have increased the demand for smaller loans in the United States. Microlending has emerged as a viable option and more American small businesses are using microloans to stay afloat. United States of America business owners are taking advantage of a pilot program began by Kiva, a microlender that has made loans of more than $ 150 million in 53 countries. Also picking up the pace within the United States of America is Grameen Financial institution, a Bangladesh microlender founded by Muhammad Yunus, a pioneering microlender who has been recognized for his work with a Nobel Peace Prize.
Senate drops the ball on small business lending
Microlenders are taking up the slack in small company credit as Congress plays partisan games. A bill crafted to facilitate a thaw in small business credit perished July 29, Bloomberg reports, because senate Democrats failed to get enough votes to move the measure beyond debate. To motivate small company lenders, the bill proposed funneling $ 30 billion to banks with less than $ 10 billion in assets. As their level of lending rose, the cost for those banks to pay back the cash would fall. The potential results of the small business lending bill were estimated at up to $ 300 billion in loans. But Republicans wanted to tack extending the Bush tax cuts to the bill while they said it would encourage more risky lending.
Microloans are getting results
Microlending is growing because small businesses aren’t waiting for Congress to get its act together. The New York Times article tells the story of a restaurant owner in Silicon Valley who saved her business with a $ 6,500 loan that she has three years to pay back that carries a 6 percent rate of interest.The Miami Herald reports that a Miami microlender called OUR MicroLending has underwritten 764 loans adding up to $ 4.5 million. OUR MicroLending customers normally have less than five employees and $ 100,000 or less in annual sales. The lenders microloans average about $ 5,000 in a $ 1,500 to $ 12,000 range.
Further reading
nytimes.com
bloomberg.com
miamiherald.com
