Twenty-five years ago, the U.S. Small Business Administration (SBA) started supporting microlending in America by providing loan capital and grants to nonprofit financial institutions nationwide. The idea was to help small businesses that couldn’t get funding elsewhere by offering term loans under $50,000 at low interest rates. The goal was for these businesses to use the loans to grow, create, or retain jobs. The SBA believed that small businesses should also receive technical assistance before and after getting loans to strengthen their foundations, improve operations, and manage growth. With nearly $900 million loaned out and 250,000 jobs created or retained, it’s clear that SBA’s Microloan Program has been a great success.
By partnering with hundreds of nonprofit financial institutions across the country, SBA’s Microloan Program has issued over 69,000 loans, with an average loan amount of just $12,386. Most borrowers are small local businesses that reflect the character of their communities, and they are quite diverse. For instance, 48% of businesses receiving microloans are owned by women, 27% by African-Americans, and 19% by Hispanics. Comparatively, less than 3% of traditional bank loans go to African-Americans and less than 20% to women. Additionally, 41% of SBA’s micro-borrowers are start-ups, and 29% are in rural areas, which is nearly 10% more than the proportion of small businesses in rural America.
A great example of a successful microloan recipient is Nicole Bradstreet, the owner of Flowers by Evelyn in Gaylord, Michigan, a town with a population of 3,645. After losing her banking job, Bradstreet started delivering flowers for the shop to pass the time until she found a new career path. In 2012, when the shop’s owner, Evelyn, decided to retire and close the business, Bradstreet asked if she could buy it instead. She approached an SBA microlender called Northern Initiatives in Marquette, Michigan, which financed the deal. Northern Initiatives didn’t just finance her; they also provided extensive training in QuickBooks accounting, website development, Facebook advertising, online presence, and marketing strategies. Bradstreet felt supported as Northern Initiatives became a crucial part of her business team.
Tens of thousands of other small business owners, like Nicole Bradstreet, have achieved their dreams of owning and growing a small business thanks to SBA’s Microloan Program. Any entrepreneur who has been declined for a loan should seek out a local SBA microloan intermediary and give it a chance. Loans range from $500 to $50,000 and can 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. After twenty-five years of microlending, we’ve learned that small loans make a big difference for entrepreneurs, leading to a stronger and healthier small business economy and more jobs.
