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US Entrepreneurs Turn To Microfinance
It looks like US entrepreneurs are increasingly turning to microloans, particularly now, as banks tighten lending standards.
To be sure, microlending is a tiny, tiny piece of small business credit in the US. Microlenders tend to be small nonprofits, and all their loans combined probably wouldn’t be a blip on the portfolios of one of the big banks. That said, there’s some evidence that it’s a growing source of credit for some very small businesses locked out of the conventional credit market.
ACCION USA’s Laura Kozien said that the organization is seeing more borrowers with FICO scores between 650 and 750, which is good credit. “We’ve really noticed a lot of people who formerly would have qualified at a bank.” ACCION USA’s loan volume for June, July, and August was $1.45 million disbursed in 228 loans, compared to $1.2 million in 207 loans for the prior three months, so again, these are small amounts, but growing.
Demand for microloans in the US has jumped in the past year, according to Sara Ignas of the Association for Enterprise Opportunity, a trade group for microlenders and microenterprises.
The numbers are small but the trend is interesting.
Photo by on2wheelz.
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CoolProducts on October 15th, 2008 11:17 am
This is pretty interesting.
Kind of off topic, but have you heard of many cases where the government has taken over banks and many are able to pay back like 50 cents to the dollar on their loans?
Jaclyn on October 15th, 2008 12:23 pm
With the way the economy is turning out to be these day’s, it’s really no suprise to me that business and people everywhere are starting to find other resources other then a large bank to borrow money from. The restrictions now a days on loans is so tight, that people almost have no choice but to find money/loans from some other source if they want to make it in the world or just plain survive.
cassy on October 18th, 2008 8:48 pm
I agree with Jaclyn, I have known lots of people here who lend money not only to the banks but also to some people who’s business is lending money. They do this not only to start a business but also to survive.
Erik on October 24th, 2008 11:13 am
I recently noticed Schwab Charitable launched a microfinance guarantee program. Does anyone have experience or opinion on this?
This program differs from direct microfinance gifts in that funds are used to guarantee loans—like a parent co-signing a student loan.
I think it is interesting that this Schwab Charitable program is among a few organizations popping up—Kiva.org and Microplace.com—that are helping to bring microfinance funding opportunities to middle class Americans.
And microfinance in general is such contrast to the mess created by the credit crisis. It is succeeding because loans are transparent, lenders know the borrowers, borrowers are not encouraged to take out more debt than they need and loans aren’t run through a Veg-o-matic that slices and dices the loans beyond recognition.
Default rates are less than 3 percent for microfinance loans, this despite the fact that loan recipients are typically poverty-stricken entrepreneurs in some of the world’s least developed economies..
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