URL: http://www.entrepreneur.com/magazine/homeofficemagcom/2000/december/34888.html

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.

Microloans are also available in the private sector, through Web-based operations like international organization ACCION, women-friendly Count Me In, and community efforts like Ukiah, California-based West Company. These organizations promote economic growth by lending to entrepreneurs who fall outside the radar of traditional lenders.

Homebased business owners who have used microloan programs rave about them. "Necessity is the mother of invention," says Sharon Johnson, a New York City-based jewelry artisan. "Just because your income is low doesn't mean you can't be creative." The former welfare recipient presented a business plan to Accion and was given a small loan of $1,500 to buy a printer and some design software. Johnson says her new equipment improved her Web site and catapulted her into e-commerce. Today, her jewelry is sold at 10 New York stores, and she has three part-time employees.

Another ACCION loan recipient, Neela Bawa, tells a similar story. Twenty years ago, Bawa moved to Chicago from her native India with her husband and two young sons. She brought along a strong sense of her own culture and visions of bringing part of it to her new life in the United States. To make ends meet while getting her degree and raising her children, Bawa decided to import Indian fashions to the United States. "I had a dream that one day I would dress up the world," she recalls.

Connecting with exporters from India, Bawa started her business, Neela's Selections, in 1996. But with importing inefficiencies and her busy schedule, she found that the only outlet for her goods was at an annual exposition for international merchandise.

In the summer of 1999, with the annual exposition fast approaching, Bawa's business hit a wall. Recently divorced, she was left with no credit history of her own. She couldn't afford to import the goods she needed, and nobody would give her a loan.

She approached the SBA for a $5,000 loan but was turned down. Then the SBA recommended that Bawa apply for an ACCION Chicago loan. She contacted them and was approved in time for her annual conference. "Without the loan, I could never have ordered the merchandise I needed," Bawa says, "and I would have lost out on my best sales opportunity of the year."

Other homebased entrepreneurs feel just as fortunate. Geneva Francais, a 65-year-old caterer known for her succulent salad dressings and meat marinade sauces, used a $1,500 Count Me In loan to build storage shelves in her kitchen where she bottles her vinegar-based sauces, Geneva's Splash. Her target market is upscale grocery stores. Francais turned to Count Me In because, she says, "A bank will not loan a woman money when she's 65 years old. It's just as simple as that."

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Brian O'Connell is a Framingham, Massachusetts-based freelance business writer. His most recent book, B2B.com (Bob Adams Media), is available this September. His earlier books, Generation E: How Young Entrepreneurs are Changing the Corporate Landscapeand The 401(k) Millionaire, are available in bookstores. A frequent contributor to many national business magazines, he can be reached at Bwrite111@aol.com.