Microfinance Loans = Small businesses are turning to nontraditional lenders as banks reject many loan applications following the credit crunch
Microfinance lenders, originally geared to helping the disenfranchised, are providing more financing to small businesses that can't get bank loans. While microfinance represents a tiny fraction of the U.S. credit market, it's growing fast. The industry group Opportunity Finance Network says 56% of microfinance organizations last year saw increases in loan applications. Most likely to get funding were people who were very strong small business owners who in the past would have received financing from banks.
Domestic microfinance groups loaned $57 million in 2008 (the most recent data available), up 68% from a previous survey in 2002, according to the institute. The U.S. groups are typically supported by government agencies and nonprofits, and about 400 of them offer small business loans that average nearly $9,000 and are usually capped at about $35,000.
The industry received attention two years ago when Grameen America, an offshoot of Bangladesh-based Grameen Bank founded by Nobel Peace Prize winner Muhammad Yunus, opened in New York. Among the biggest U.S. microlenders is Opportunity Fund. It is on track to make 200 loans this year, up 30% from 2009.
Even relatively tiny amounts of cash can make a big difference to a small company. As banks have been slow to boost credit for small business, microfinance groups have stepped up lending to entrepreneurs.