Getting Micro Loans for Your Small Business

(Editor’s note: In the story below, the person we interviewed, Carlos Cepeda, told us that the interest rate he was paying on his loan was 1-percent. We have since received a correction from his lender, Accion. Their words:”The article and story both mention that we give loans at 1% interest, although this would be wonderful, because of the high risk we take on financing those with lower credit history and scores our rates range from 8.99% to 15.99%. )

In last week’s jobs address to Congress, President Obama said this: “Everyone here knows that small businesses are where most new jobs begin. And you know that while corporate profits have come roaring back, smaller companies haven’t.”

One reason why small businesses aren’t roaring is that for many, today’s tough lending standards make it tough to get money. So while the president’s proposed tax breaks sound nice, access to capital might be even nicer.

The recession has made things much worse for the little guys. Traditional lenders often consider small businesses too risky, and some owners don’t have great credit. So how can they get the funds they need to keep going? Maybe they need to think small. In the video below, Money Talks News founder Stacy Johnson shows how micro loans saved one small business after all its equipment was stolen. Check it out, then read on to learn more about micro loans and who offers them.

As you heard, Carlos Cepeda got a $20,000 loan at 1-percent interest for his lawn care business from Accion, a national nonprofit microlender. It’s one of several out there willing to loan small business owners with good credit up to $50,000 at low rates. Here are some of the other top lenders:

• Justine Petersen offers loans that average about $10,000. Last year, it made 335 loans for $2.26 million.
• Opportunity Fund is a San Francisco-based lender that lends up to $100,000 at up to 12-percent interest. They’ve loaned more than $10 million to Bay Area businesses since 1995.
• Business Center for New Americans based in New York offers up to $35,000, and will help you find another lender if you don’t meet their eligibility requirements.
• Access to Capital for Entrepreneurs offers loans of up to $50,000 to Georgia companies.

These are just a few to give you an idea of what these nonprofits typically offer. Most are regional, and you can find a more complete index of microlenders by state at the Aspen Institute’s MicroTracker. Keep in mind, however, that this isn’t free money. While lending standards may be looser than those at big banks, you’ll still be required to prove you’re a good risk.

Here are a few other things to keep in mind:

1. Many of these lenders offer additional services like free advertising, and workshops that help you learn to manage small business finances. Take advantage of everything – it’s all too common for startups to fail because they take the money, but not the advice.
2. Some organizations help you build credit by reporting your payments. That can help get bigger loans with better terms down the road. But not all do, and other conditions vary widely by lender, so read everything carefully.
3. Some microlenders don’t even use your credit score as a factor in their decision-making, so don’t write off an opportunity just because of a low one. If you do need to work on your credit, check out 3 Tips to Raise Your Credit Score Fast.
4. Microlenders might not be the only avenue of funding. Check out credit unions, community banks, local chambers of commerce, and small business development centers in the area to find out what else is available.

Small business owners may also want to check out our stories on how to structure a business, ways to bring in customers, and fake business grants.