Twenty-five years ago the U.S. Small Business Administration (SBA) embarked on a journey to support microlending in America by providing loan capital and grants to nonprofit financial institutions throughout the country. The premise was that small businesses unable to access capital elsewhere would benefit from term loans under $50, 000 at low interest rates. The hope was that they would use their loans to grow their business and create or retain jobs. SBA also believed that small businesses should receive technical assistance before and after they received loans to improve their businesses foundation, operations and to manage growth. Close to $900 million and 250, 000 jobs later we can say with certainty that SBA’s Microloan Program has been a resounding success.
Working with hundreds of non-profit financial institutions throughout the country, SBA’s Microloan Program has made over 69, 000 loans with an average loan size of just $12, 386. The vast majority of borrowers are Main Street mom and pops that embody the character of the community. They are also quite diverse. Just to cite a few statistics, it turns out that 48% of businesses receiving microloans are owned by women, 27% are owned by African-Americans, and 19% are owned by Hispanics. In comparison it is estimated that less than 3% of conventional bank loans are made to African Americans and less than 20% are made to women. In addition, 41% of SBA’s micro-borrowers are start-ups and 29% are in rural areas which is nearly 10% more than there are small businesses in rural America.
One such example of a successful microloan borrower is Nicole Bradstreet – owner of Flowers by Evelyn. Her flower shop is located in Gaylord, Michigan – population 3, 645. After losing her job in the banking sector, Bradstreet began making deliveries for Flowers by Evelyn biding her time until a new career picture came into focus. In 2012, when the owner of the shop who was named Evelyn decided to retire and close it, Bradstreet asked if she would sell it to her instead. She went to a SBA microlender named Northern Initiatives in Marquette, Michigan and they financed the deal. In addition, Northern Initiatives provided Bradstreet with hands-on training in QuickBooks accounting and assistance with website development, Facebook advertising, overall on-line presence and marketing strategies. As Bradstreet describes it, “Not only did they [Northern Initiatives] agree to take a shot on my business, they really invested time and resources into developing me as a business owner to make sure I would succeed. Northern Initiatives is irreplaceable. They become part of your team.”
There are tens of thousands of other small business owners just like Nicole Bradstreet that have realized their dream of owning and growing a small business thanks to SBA’s Microloan Program. Any entrepreneur who has ever been declined for a loan should find a local SBA microloan intermediary in their community and give them a try. Loans are anywhere from $500 to $50, 000 and may be used for working capital, materials, supplies, equipment and inventory. In fiscal year 2017 the average interest rate was 7.1% and the average loan maturity was 38.75 months. Twenty-five years of microlending to small businesses has taught us a thing or two about lending to entrepreneurs. Most importantly, it has taught us that small dollar loans make a big difference to entrepreneurs which means a stronger and healthier small business economy and more jobs.