Where to Secure Micro-Business Financing
Fashion designer, Tory Burch, has established a foundation to provide U.S. micro-businesses with financing. In a December 2 interview on CNBC, she mentioned that it is easier for women in India to receive funding for their micro-businesses than it is for women in America, especially women with children, as documented by a recent National Citi study. In addition, The Aspen Institute think-tank estimates that less than 2 percent of businesses that could profit from micro-financing have access to funding. Burch has teamed with Accion, which is forging ahead with micro-funding throughout the U.S., after successes in other countries.
Traditionally, micro-business financing has been lumped together with small business financing. While there are overlaps, these can be distinctly different markets. Small businesses are generally defined as companies with up to 500 employees and less than $500 million in revenues. What is a micro-business? The Association for Enterprise Opportunity (AEO) description: It has five or less employees and requires less than $35,000 in start-up capital. More than 87 percent of all U.S. enterprises are micro-businesses; one out of every six people now works for a micro-business. Those numbers are rising rapidly with job losses caused by the current economic decline.
Recently, the AEO convinced the Obama Administration to increase micro-loans offered by the SBA (Small Business Administration) from $35,000 to $50,000. However, most micro-businesses cannot qualify for traditional lending, if they could find a financial institution that offers this low profit SBA product. This is the reason for Tory Burch’s foundation and for 650 community-based micro-business nonprofit development and support organizations throughout the country. Most U.S. micro-financing is for between $1,000 and $10,000, although exceptions are sometimes made for much larger amounts. The idea focused nonprofit, Aspen Institute, offers a breadth of free business development and management information plus free publications from its Field Microenterprise Fund.
An intention of most micro-business funding programs is to help you develop a positive credit history so you can access traditional forms of credit. In addition, these resources usually offer needed guidance if you’re starting a business for the first time and/or if you’re recovering from a wallop of a set-back in your life. Because these organizations want to help you succeed, in many cases they consider day-to-day challenges that would be easy for a seasoned entrepreneur to handle but may cause financial issues if you've never encountered difficulties, such as:
- A no-show customer ‘disappears’ after placing a large custom order.
- A customer’s check bounces, but the purchaser’s bank doesn’t inform you for more than two weeks. You waited a week, then spent that money buying business supplies. Now your business checking account is overdrawn. You won’t have the funds to cover the overdraft for a month.
- Essential items you need for a project do not arrive from your supplier. You can substitute from another source, but it will mean you must reduce your price (and your profit) substantially.
AEO lists micro-business and micro-funding support organizations around the country. And the Aspen Institute’s most recent, 2005, Field Fund directory lists community organizations offering micro-finance.
In addition, these organizations provide micro-loans to micro-businesses throughout the U.S.:
Accion
International micro-financing leader, Accion, moved into the U.S. market during the past decade. The company began with trial programs in the Northeast and has gradually expanded. In addition to physical offices in several cities, its Internet-based lending program allows the firm to provide loans across the country. Their average loan is $6200. Accion does have more stringent qualifications than a community-based micro-business support organization might accommodate. You’ll want to evaluate their requirements and talk with a loan officer to determine whether Accion is the right place for you to secure micro-financing.
This peer-to-peer lending organization has partnered with Accion to qualify borrowers and administer loans in America. Applying for a U.S. Kiva loan is the same as applying for an Accion loan.
During the White House hosted Jobs Summit on December 3, a repeated refrain from larger businesses was the production problems they are experiencing because their smaller suppliers are being denied financing to produce parts needed by the major companies. As most small businesses know, even profitable companies with excellent credit histories are being denied the ebb and flow of credit they’ve come to depend on from major financial institutions. While lines of credit and working capital loans can be available to small businesses at local/regional banks and credit unions, micro-businesses need to seek out capital from community development organizations, community-based micro-financing lenders, or national micro-lender, Accion. With a growing demand for micro-funding sources, watch for additional borrowing opportunities in your community as you pursue your entrepreneurial dreams.
