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2017

You may have heard of “microfinance,” but what it is and what the popular perception of what it is are often two different things.

 

According to Forbes, “Back in 1974, a Bengali man named Muhammad Yunus created the concept of microfinance with Grameen Bank, winning him the Nobel Peace Prize in 2006 for the dramatic global impact of his idea. The World Bank estimates that more than 500 million people have benefitted from microfinance to date.” For example, using a Grameen loan, a farmer in Bangladesh might get a loan of $200 to buy cows.

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Microfinance is oftentimes considered a tool to help impoverished people in developing countries. A similar institution to Grameen Bank is Kiva.org. Kiva is a person-to-person microlending organization that has provided more than $1 billion in small loans to 2.5 million entrepreneurs from 1.6 million lenders.  The astonishing repayment rate is 97 percent.

 

The good news for small business owners is that microfinance is not just about $100 loans to poor farmers in India. As you might imagine, there are plenty of would-be entrepreneurs in the U.S. who could also use access to loans smaller than what a traditional bank may offer, but more than what someone in the developing world needs.

That is where the misperception and opportunity exists.

 

CLICK HERE TO READ MORE FROM SMALL BUSINESS EXPERT STEVE STRAUSS

 

Microfinance has become a western option now too. Since 2008, microfinance has become an increasingly popular way to finance expansion of a small business. Microfinance loans in the U.S. certainly consist of more money than that Bengladeshi farmer might get, but are still nowhere near the larger loan minimums required by most major banks.

 

The idea is that people with bad credit or no credit can now be eligible to receive a microloan. Microlenders look beyond your FICO score and bank balance; instead, they tend to pay attention to things like your passion, your experience and the opportunity. Although microloan interest rates might be a little high, new standards of eligibility should get you very excited.

 

So, all of this begs the question: How and where do you get a microloan? Here are your options:

 

CDFIs: One of the best ways to get a microloan is through your local Community Development Financial Institution – or CDFI. CDFIs offer many services, such as financial advice, but what they specialize in is offering affordable loans for small businesses, nonprofits, and other moderate to low-income organizations. You will want to start this process by finding a CDFI near you. Make an appointment, bring your business plan, and come prepared to get funded.

 

Accion: Accion is one of the vanguards of microlending in America. They offer up to $50,000, and also offer financial education.

 

RELATED VIDEO: YouTube Panel: Small Business Financing Tips for 2017

 

The SBA: As perhaps the very best resource out there for small businesses, it is no surprise that the Small Business Administration is in the business of microfinance. The SBA does not directly offer microloans, but is a major funder of microloans for third-party lenders. Typically, the average SBA microloan sits at around $13,000, but can go as high as $50,000.

 

Grameen America: As you now know, Grameen Bank started out in Bangladesh. It came to the U.S. a few years back. Grameen America differs from the rest in that it requires training sessions for borrowers, and the maximum first-time loan is much more on the micro-side ($1,500).

 

Kiva: Kiva came to the U.S. in 2010, and is one of the major microlenders today. All loans are funded by user donations. American borrowers can be lent up to $10,000.

 

So yes, microloans are major help for small business the world over.

 

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About Steve Strauss

Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest, The Small Business Bible, now out in a completely updated third edition. You can also listen to his weekly podcast, Small Business SuccessSteven D. Strauss.

 

Web: www.theselfemployed.com or Twitter: @SteveStrauss

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Bank of America, N.A. engages with Steve Strauss to provide informational materials for your discussion or review purposes only. Steve Strauss is a registered trademark, used pursuant to license. The third parties within articles are used under license from Steve Strauss. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.

 

Bank of America, N.A. Member FDIC. ©2017 Bank of America Corporation

By David Burch

 

As an entrepreneur, you may rely on a variety of sources for capital – such as banks, family, personal savings or even angel investors. Regardless of the financing sources you tap or the stage of your business, securing and accessing capital is likely to play a critical role as you plan for future growth.

 

34977526_s+copy.jpgAccording to the Bank of America spring 2017 Small Business Owner Report, more than half of small business owners nationwide are planning to grow their business over the next five years. If you’re among those millions of business owners planning for long-term growth, what should you know about financing that growth?

 

Below are top strategies to help secure financing, identify resources for capital, and navigate through emotions and financial arrangements when funding is provided by loved ones.[1]

 

1. Know the “5 Cs”

To increase your chances of securing funding, planning is essential – and a key component of that preparation is having a general understanding of creditor expectations. While each business is different and has unique financial needs, there are generally “5 Cs” that creditors evaluate when making lending decisions for small businesses: Capacity, Collateral, Capital, Conditions and Character.

  • Capacity evaluates whether your business can support debt and expenses. Typically, you need enough cushion to absorb unexpected expenses or a downturn in the economy.

  • Collateral can be offered as security for repayment and forfeited in the event of a default. Examples of collateral include accounts receivable, inventory, cash, equipment, and commercial real estate. Creditors may also take into consideration existing debt that your business may still owe on collateral.

  • Capital takes a look at whether your business’ assets outweigh its liabilities, and how much capital you and other outside sources have invested.

  • Conditions such as the economy, industry trends and pending legislation may be a consideration, although these are often out of your control as an individual small business owner.

  • And finally, Character – your own character and the character of those tied closely to the success of your business – is critically important. Factors such as personal integrity, industry experience, and good standing can make a difference.

 

2. Treat every loan as a contract – regardless of the source!

/videos/1039 When you’re starting out, the financial support you might receive from family and friends can make a big difference in helping to get your business off the ground. However, this can sometimes cause stress and awkwardness for everyone involved. To minimize this, it is important to create a contract for every type of loan you receive – whether it’s a financial agreement with a family member, friend or a bank. It can be immensely helpful to clarify up front with family and friends whether you are receiving a gift versus a loan. If it’s a loan – are they expecting some interest to be paid back? Do you need to pay back the loan within six months, a year, or is there more flexibility? Does your family member or friend want something in return, such as a stake in your business? To avoid unnecessary stress and confusion, it is important to know and write out the full terms of your agreement so you can focus your efforts and energies on making your business successful instead of worrying about misunderstandings.

 

3. Take advantage of resources

There are a variety of available resources you can turn to for lending advice, guidance and support – family members, friends, your professional network, financial experts, small business advocates, online content and more. Take advantage of this vast well of knowledge. I also encourage you to meet with a small business banker. They are experts in small business lending and can provide advice about what is best for you and your business, both in the short- and long-term. Even if you are just starting out and don’t think you will qualify for a bank loan, small business bankers can give you guidance on where to turn for capital. They can also help you develop a business plan so you get where you need to be to receive a traditional bank loan.

 

There is a treasure chest of free online tools and technology that can make life easier for business owners, such as Nav and the Small Business Administration. You can also turn to Google to search for answers to your questions, but a word of caution - use Google searching as a starting point, and always double check with other reliable sources to make sure you are getting good advice.

 

Want to learn more about securing the financing you need to grow your business? Check out the Bank of America Small Business Community for tips and information on accessing capital and more.[2]

 

 


[1] The views and opinions expressed herein are solely those of Bank of America, NA (the “Bank”), and have been obtained or derived from sources believed by the Bank to be reliable. The information provided herein is solely for educational purposes, and the Bank does not recommend that the information serve as the basis of any business decision and may not be construed as such. The Bank does not make any representation or warranty, express or implied, as to the information's accuracy or completeness, and the Bank makes no promise or guaranty that any particular measure of success or results will be achieved from relying on the information provided herein

 

[2] Bank of America, N.A. (the “Bank”) provides informational reading materials for your discussion and review purposes only. Please consult your tax advisor, as neither the Bank, its affiliates, nor their employees provide legal, accounting and tax advice. Credit is subject to approval, loan amounts are subject to creditworthiness, and normal credit standards apply. Some restrictions apply.

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