Fighting over money
Microloans are emerging for small businesses. CC by HikingArtist/Flickr

An answer to the small business loan crisis may be microloans. Developing countries have benefited the most from microloans thus far. But with more banks saying no to small businesses, microlenders are getting more business from entrepreneurs who want to use microloans.Prospects for microlenders could continue to improve, considering a small business lending bill died in partisan gridlock that would have cut taxes and eased credit for small businesses.

America gets a taste of the third world with microlending

One of the most effective ways to finance growth in the third world has been making small loans to the poor, a practice known as microlending. Then the U.S. economy collapsed and recovery has been weak. The New York Times reports that demand for small loans has increased in the U.S. during the recession and credit crunch. Microlending has emerged as a viable option and more American small businesses are using microloans to stay afloat. A pilot program for U.S. business owners has been launched by Kiva, which has microlent more than $150 million in 53 nations. Also picking up the pace in the U.S. is Grameen Bank, a Bangladesh microlender founded by Muhammad Yunus, a pioneering microlender who has been recognized for his work with a Nobel Peace Prize.

Senate drops the ball on small business lending

The U.S. Senate is arguing while microlenders are stepping up to finance small business. Bloomberg reports that because senate Democrats failed to get the votes required to advance beyond debate, a bill written to loosen small business credit died July 29. To motivate small business lenders, the bill proposed funneling $30 billion to banks with less than $10 billion in assets. As their level of lending rose, the cost for those banks to pay back the money would fall. The small business loan package had been estimated to stimulate up to $300 billion in lending. But Republicans said it would result in more risky lending, even as they tried to attach making the Bush tax cuts permanent to the bill.

Microlending at work

Small businesses are succeeding with microloans while the Senate quarrels. The Times article features a Silicon Valley restaurant owner whose business was saved with a $6,500 microloan with a three-year term at 6 percent interest. The Miami Herald reports that a Miami microlender called OUR MicroLending has underwritten 764 loans adding up to $4.5 million. OUR MicroLending customers normally have fewer than five employees and $100,000 or less in annual sales. The lender’s microloans average about $5,000 in a $1,500 to $12,000 range.

New York Times: http://dealbook.blogs.nytimes.com/2010/07/29/with-squeeze-on-credit-microlending-blossoms/

bloomberg: http://www.bloomberg.com/news/2010-07-29/senate-republicans-block-small-business-lending-bill-sought-by-democrats.html

miamiherald: http://www.miamiherald.com/2010/07/25/1744376/tiny-loans-propel-big-dreams.html

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