I only need to borrow $5,000 to get my cleaning business up and running. My credit isn’t great and the banks aren’t interested in loaning me that small of an amount. Are there any other sources of financing that I could contact?

A microloan may be your answer.  Microlending originated in the 1970’s with Grameen Bank in Bangladesh.  The philosophy was to eliminate poverty through entrepreneurship.  Since that time, the concept has expanded worldwide, operating through a number of different types of organizations.  Today, microcredit is available in the US.  Grameen Bank began operation in New York in April 2008. 

Wyoming is fortunate to have our own microlending institution, the Wyoming Women’s Business Center.  They can loan between $100 and $10,000 to individuals unable to get financing through traditional means.  In order to be considered for a loan, you must have been denied credit from a financial institution for a similar loan request, show current responsible use of credit, contribute personal equity in either cash or assets, as well as have some collateral.  In addition, a business plan or explanation of the business and how you plan to utilize and repay the loan funds (application requirements depend upon loan amount) is required.  Interest rates vary from 8.5% to 12.5%, and loan terms up to 72 months are available.  Loan application charges are $47.00.  For more information about the Wyoming Women’s Business Center microloan program, contact Andrea Presse at (307) 778-3908, [email protected], or visit their website, http://www.wyomingwomen.org. 

Another alternative for small businesses is Accion USA.  Accion, a non-profit organization, sponsors a Global Bridge Fund that allows individual investors to lend money to the funds and earn interest, while their pooled funds support microfinance institutions.  Available loan sizes vary from $500 to $50,000, and interest rates range from 8-15%.  They also charge 3-6% in closing costs.  Start-ups are required to have a cosigner and an external source of income.  Learn more at http://www.accionusa.org. 

If you are a borrower, beware of predatory lending practices.  Research any microlenders very carefully. Some microlenders operate via donations, others repay principal only to the investors, and others repay principal plus interest to investors.  Funds paying interest to investors will be charging higher interest rates to their borrowers.  Walk away from any lender charging over 15%.  Watch carefully for added closing or application fees.  Any organization charging very high fees is using fees as a profit center.

If you are an investor, consider combining investment with social impact.  eBay’s subsidiary, MicroPlace.com, defines itself as a “social business,” a financially sustainable company that has a social mission.  They offer numbers of alternative methods to invest by geographic location, desired return or term, level of poverty, and type of enterprise.  As for borrowers, be careful that the company you are investing with is legitimate, and that a fair proportion of your investment actually goes to those in need.

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