Little loans, big benefits: hundreds of community-based agencies loan small amounts to start-ups and existing home businesses - includes related articles on two case studies of individuals who received loans and includes a directory of microloan institutions

Home Office Computing, July, 1993 by Paul Edwards, Sarah Edwards

Loans range from $250 to $50,000, with the average being around $7,000. In many cases, the lending institution will give a series of small loans, starting at $500 and increasing with each successful payback. The amount of time allowed for payback ranges from three months to six years; interest rates range from 5 to 16 percent.

Most programs offer technical assistance in the form of individual counseling, courses, and seminars. Others provide referrals for such services to other community agencies. Seven programs require or recommend completion of a training program before a loan is given. One agency provides educational grants for applicants.

The kinds of businesses funded range from the unusual-- raising exotic birds, crafting dogsleds, and making incense--to the more familiar-computer training, tax services, and desktop publishing. In our survey, desktop publishing was the most popular type of home business that received a loan, followed by day care, catering, and clothing design.

The loans have been used for inventory, supplies, equipment, renovation, and working capital. Of the 70 different kinds of home businesses that have received loans, more than a third borrowed money to purchase a computer or other office equipment, according to our telephone polling.

THE FUTURE OF MICROLOANS

The SBA plans to expand its microloan program to 110 lenders this year. SBA's Stamler sees a bright future for the program because "it fits in well with President Clinton's plans for economic development." AEO's Friedman agrees, pointing out that both Congress and the Clinton administration have demonstrated a high level of commitment to the concept of microloan programs, and President Clinton's campaign platform called for launching 1,000 such programs. "The SBA program is a tremendous affirmation of this field," says Friedman. "It's grown much faster than even the most ardent proponents would have predicted. Ultimately, there will be many other programs, serving millions of borrowers, and that will still serve only a small percentage of the need."

So if you need but have not been able to get a small loan from traditional lending sources to start or expand your business and believe you can demonstrate the ability to pay it back, review HOME OFFICE COMPUTING's Microloan Directory and find out if there is a program in your locale. Since microloan lenders receive funds from local private sources to spur economic development in the community, only approach lenders near you.

If one isn't available in your area, contact a small-business development center in your community, an excellent source of information about the growing pool of microloan funds available in an otherwise harsh lending climate.

The following list of microloan institutions includes all 47 that have received loan funds from the U.S. Small Business Administration (SBA), plus MICRO, Working Capital, and The North Carolina Rural Economic Development Center, the first two being the most established microloan institutions in the country. All 50 programs loan to home-based businesses. Thirty-one provide loans to individuals; three provide loans only to groups of individuals; 14 provide both individual and group loans. Two provide no direct loans but, rather, work through local banks.