When You Need a Tiny Loan...
Question: I'm starting a homebased catering business, and I only need $2,000 to buy equipment and supplies. My bank doesn't lend to startups and I don't want to charge everything on my credit card, but what choice do I have?
Answer: If you only need a small amount of money to start your business, one option to consider is to obtain a microloan. Originally intended as a way to fight poverty by lending small amounts of money to entrepreneurs in developing countries, microlending is becoming a popular source of capital for startups launched by middle-class entrepreneurs in the U.S.
Since 1994, the U.S. Accion Network--a nonprofit organization founded in part by Accion International, one of the world's largest microlenders--has loaned more than $154 million to more than 16,000 businesses nationwide, including caterers, florists, hair salons, day-care centers, even online publishers. First-time loans range from $500 to $25,000, with terms of up to 60 months, filling a void for startups that may not have access to traditional bank credit. (The maximum loan amount for new businesses is $10,000 and generally requires a business plan.)
According to Hannah Caldwell Henderson of Accion, the organization charges an annual interest rate of 12 percent to 16 percent on its loans (plus a 5 percent origination fee) and tries to help its clients qualify for traditional bank financing after building their businesses and credit track records. Accion looks at the borrower's character and business experience, not just the credit score. "There are definitely business owners among our clientele who are earning decent wages but still cannot qualify for traditional credit," Henderson says. To apply for an Accion loan, go to https://secure.accionusa.org/apply/controller.
Rosalind Resnick is founder and CEOof Axxess Business Consulting,a New York City consulting firm that advises startups and small businesses.