Back in 2005, Chancey Peake was a housekeeper and nanny in Greenville, S. C. It was there she began to make what would become her soon-to-be-acclaimed, almost world-famous, banana bread.
As fate would have it, not long after perfecting her recipe and launching a side business selling the bread, the family for whom Chancey worked decided to move to Texas, leaving Chancey without a job or income. But what she did have was a great recipe for banana bread that people went, well, bananas over, so she and her husband stared to sell it at the local Farmer’s Market.
The bread was a hit from the start, and the legend of Chancey's “Banana Manna” grew. And, while she loved the attention, what Chancey really wanted was her own storefront.
And that is where the magic of microfinance came into play.
With the help of Kiva.org, Chancey got a $2,000 microfinance loan and, even with that little amount of startup capital, was able to rent and launch her own brick-and-mortar bakery. Chancey now sells 15 varieties of banana bread and recently brought on two part-time employees.
In the world of microfinance, as the story of Banana Manna proves, a little money can go a long way.
Traditionally, when it comes to lending and investing, banks and other lenders look for bigger, more established businesses. But the problem with this is two-fold:
- First, a lot of businesses, startups especially, do not need five, six, and seven figure loans. They need something smaller.
- Second, many of the solopreneurs who start small enterprises do not have the credit to secure a big loan or investment, even if they needed one.
That’s where microfinance comes in. Microfinance is a way for small businesses to get microloans, even if they have poor or no credit. The very size of microloans makes any individual loan a small risk.
Microfinance began in the developing world. Specifically, it was the Grameen Bank in Bangladesh that created this model, lending millions of dollars in loans as small as $100 to would-be entrepreneurs. Farmers were able to buy a cow, seamstresses could buy cloth. And it worked. Millions of solopreneurs were launched, and, maybe even more remarkably, these unsecured loans had a 97% pay back rate.
A good idea like this spreads, and as such, microfinance came to the U.S. about a decade ago, but with a twist. Typically, the loans are a little bigger (in the thousands, not hundreds), but even here, guidelines are relaxed and the loans are easier to get than traditional business loans.
Another great aspect of microfinance is that lending decisions are made based on reasons beyond one’s FICO score, bank balance, and collateralization ability. Microlenders look at a bigger picture, including:
So, where can you find a microloan? Here are your best bets:
CDFIs: Community Development Financial Institutions – or CDFIs – specialize in offering affordable microloans for individuals, small businesses, nonprofits, and other moderate- to low-income organizations. You will want to start this process by finding a CDFI near you.
RELATED CONTENT: Need Capital? Consider a CDFI
Accion: Accion is one of the pioneers of microlending in America. They offer loans from $500 up to $1 million, though, for example, the average microloan size in their Chicago office is $9,000.
The Small Business Administration: 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. Learn more here.
RELATED CONTENT: An Overview of SBA Loans - SBA Loans Guide Part 1
RELATED CONTENT: Types of SBA Loans - SBA Loans Guide Part 2
RELATED CONTENT: How to Apply for an SBA Loan - SBA Loans Guide Part 3
Grameen America: As you now know, Grameen Bank started out in Bangladesh. It came to the U.S. a few years back. Grameen America’s maximum first-time loan is $1,500.
Kiva: This is the group that helped Chancey. 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.
Microloans: a great idea whose time has come.
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 Success.© Steven D. Strauss.
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