Brother, Can You Spare $10,000?

Microlenders are filling in the financing gaps homebased businesses often fall through.

Most homebased business owners--the successful ones anyway--have a financial plan in place well before they hang a shingle outside their front door announcing their new business. Many folks plan ahead so well that they have a savings in place specifically to finance their new business. Others may count on the financial support of family and friends, or rely on their good friends at Visa and MasterCard to fund their companies.

What hasn't always been available to homebased entrepreneurs is widespread access to the banks and community loan organizations that have traditionally helped small businesses on their feet. Homebased businesses don't usually require that much start-up capital--often less than $10,000 for equipment costs and start-up marketing--and so the role of organized financial institutions in homebased funding has been kept to a minimum.

But with entrepreneurialism on the rise, the financial tide may be finally turning for SOHOs. Small-business owners who don't have savings, personal loans or credit cards to rely on are turning more to microloan programs--and successfully finding the funds they need. Designed for small companies with few or no employees, microloans are, by definition, for small amounts of money ($100 to $25,000). They're not based on your credit history or collateral, but on good character, management ability and a commitment to making your business work.

Microloans are quickly gathering favor with SOHO types who don't welcome the frustration and limited success rate of dealing with traditional lenders, who don't need large loans, or whose demographics (low income or age, for example) virtually guarantees them a "no" from lenders. Domestically, Maine tops the list of states with the most microloans outstanding: $19.9 million in 1997. Arkansas, New York, North Carolina, Minnesota, California, Florida, Massachusetts, Illinois and Ohio are also on the Top 10 list, according to the Aspen Institute's 1999 Directory of Microenterprise Programs.

The first name that usually pops up when in reference to microlenders is the SBA, which makes funds available for loan through nonprofit intermediaries. Loans under this federal program can be used to buy machinery, equipment, furniture, fixtures, inventory and supplies, and for working capital; any asset bought with the money must be taken as collateral. The maximum loan term is six years.

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