Microloans for Your Small Business: 13 Top U.S. Microlenders
What is a microloan, and is one right for your small business?
If you’re a small-business owner on a quest for capital, there are several smart reasons to turn to nonprofit microlenders. These lenders go beyond making small loans to entrepreneurs and provide some benefits that traditional lenders don’t:
- Profit is not their objective. Many microlenders are called mission-focused or mission-based lenders. They offer loans from government or nonprofit programs geared to helping disadvantaged communities, including areas that are struggling economically. Some microlenders also operate internationally, helping entrepreneurs in developing nations.
- Microlenders typically offer loans of $50,000 or less to startups and other small-scale operations. Some make bigger loans to more established businesses.
- Many microlenders and nonprofits provide pro bono consulting and training, including helping small businesses build credit.
Good options for nonprofit financing
Below, we list 13 sources for nonprofit financing. They include the top lenders based on information from two major small-business institutions, the U.S. Small Business Administration and the Aspen Institute, a Washington, D.C.-based policy and educational research nonprofit.
When considering these lenders, keep in mind that microloans have limitations. Because many nonprofits rely on grants, donations or government guarantees or allocations, the number of loans they offer and the amount you can borrow are limited. Funding constraints can also mean strict borrower requirements. And many nonprofits operate only in specific states or regions.
Nonprofit microlenders are also grappling with a major trend in small-business financing: the rapid rise of online lending. It offers quicker but usually more expensive access to cash, says Steven Cohen, president of Excelsior Growth Fund, a New York-based community development lender.
“You see a lot of businesses trading off speed and efficiency for cost,” he says. “But you also see an incredibly crowded marketplace where there isn’t a whole lot of transparency. Nonprofits have the challenge of getting the word out there that, ‘We’re here. … We’re more affordable.’ ”
Top U.S. microlenders
The Aspen Institute’s FIELD program runs the U.S. Microenterprise Census, which collects data from microlenders across the country. Here are the top five microlenders by total loan amount disbursed, according to the program’s 2014 survey, the most recent data available.
Grameen America is affiliated with the Grameen Foundation, an international organization known for programs that help poor communities address their own needs. Grameen America has disbursed more than $490 million in loans to tens of thousands of women in the U.S. The organization has a nontraditional lending system: Borrowers must form a group with four other women they trust. That group then participates in a week of financial training, at the end of which each member opens a savings account and receives a $1,500 microloan to build a small business.
Microloans disbursed in 2014: $100.7 million
San Antonio-based LiftFund offers microloans in the southern U.S., including Texas, Georgia and Florida. Borrowers typically use the financing to buy equipment and supplies. The microloans are also meant to help small-business owners improve their credit and more likely to qualify for a bank loan in the future, the lender says on its website. LiftFund got a boost in October 2016 when JPMorgan Chase & Co. announced almost $5 million in funding for its new small-business loan program in New Orleans, Atlanta, Dallas, Houston, San Antonio and Austin, Texas.
Microloans disbursed in 2014: $18.7 million
California-based Opportunity Fund has been serving residents of the state since 1994, with more than $160 million in microloans. Its borrowers have a median household income of $31,000 per year. Around 90% are minority-owned businesses, and about 30% are women-owned businesses. Opportunity Fund also provides financial literacy education to business owners.
Microloans disbursed in 2014: $17.7 million
Accion New Mexico
Accion New Mexico offers small-business loans from $1,000 to $1 million in New Mexico, Arizona, Colorado, Nevada and Texas. The nonprofit also provides business counseling and marketing support and sponsors educational events. It’s part of the Accion U.S. Network, which also has major chapters in New York, Chicago and San Diego. The international Accion nonprofit offers financing services and assistance, including microloans, in 32 countries.
Microloans disbursed in 2014: $8.9 million
Justine Petersen, which is based in St. Louis, offers small-business loans, typically of less than $10,000. The nonprofit also finances businesses in rural areas through the U.S. Department of Agriculture Intermediary Relending Program and originates loans of up to $150,000 as part of the SBA’s Community Advantage Program.
Microloans disbursed in 2014: $8.4 million
Top SBA nonprofit lenders
Aside from its signature 7(a) term loans, the SBA issues low-cost small-business financing through a network of nonprofits. The SBA Microloan Program offers loans of up to $50,000 administered through community-based nonprofit groups. The SBA Community Advantage Program offers loans of up to $250,000 in communities that historically have had limited access to capital. The federal agency guarantees up to 85% of Community Advantage financing. Here are the top five nonprofits in the SBA programs based on total loan amount disbursed to small businesses in 2015, the most recent data available:
CDC Small Business Finance Corp.
CDC Small Business Finance Corp. offers different types of financing for new and expanding businesses in California, Arizona and Nevada, including SBA Community Advantage loans of between $20,000 and $250,000. It also issues SBA commercial real estate loans, known as the SBA 504 loans, for clients planning to buy an existing building or build a new facility.
SBA Community Advantage and microloans disbursed in 2015: $11.7 million
Valley Economic Development Corp.
Valley Economic Development Corp. specializes in small-business loans and microfinancing for entrepreneurs who don’t qualify for loans from traditional banks. It’s based in Los Angeles but also operates in other states, including Nevada, Illinois and New York. Aside from the SBA Community Advantage program, it participates in other small-business financing programs, including the Goldman Sachs 10,000 Small Businesses, the National African-American Small-Business Loan Fund and the National Microfinance Network.
SBA Community Advantage and microloans disbursed in 2015: $9.7 million
Empire State Certified Development Corp.
Empire State Certified Development Corp. is part of the New York Business Development Corp., a major SBA lender. It was the top SBA Community Advantage lender in 2014. Empire State CDC also participates in the SBA commercial loan program.
SBA Community Advantage and microloans disbursed in 2015: $7.6 million
Main Street Launch
Main Street Launch, previously known as OBDC Small Business Finance, serves clients in the San Francisco Bay Area. It provides small-business loans of $10,000 to $250,000 that can be used for such expenses as equipment purchase, inventory or working capital.
SBA Community Advantage and microloans disbursed in 2015: $7.4 million
LiftFund, listed above among top U.S. microlenders, also offers SBA Community Advantage loans of $50,000 to $250,000 to businesses in low- to moderate-income communities in 13 states. Business owners can also qualify if more than 50% of their full-time workforce is low-income or if their employees live in areas designated as low- to moderate-income communities.
SBA Community Advantage and microloans disbursed in 2015: $6.6 million
Other notable nonprofits
Kiva U.S. is a part of Kiva, a nonprofit working in more than 80 countries. To receive an interest-free microloan through Kiva U.S., borrowers first must have friends and family members lend to the venture. This helps establish the borrower’s creditworthiness. Once that happens, Kiva opens the loan to its lenders for funding.
Pacific Community Ventures
Pacific Community Ventures is a San Francisco-based community development lender that offers loans of between $10,000 and $200,000 to small businesses in California. You need to have been in business at least a year and have at least two employees. However, if you have a solid business record and a firm grasp of your business finances, PCV may offer you a loan even if you fall short on some requirements.
Excelsior Growth Fund
Excelsior Growth Fund offers online loans of up to $100,000 for approved borrowers in less than five days and funding of up to $500,000 through its ImpactLoan program. The lender deals with borrowers who typically wouldn’t qualify for traditional financing because their company is a startup or has poor credit. Through affiliates, it also provides SBA 7(a) and Community Advantage loans.
Business Center for New Americans
Business Center for New Americans provides financing of between $500 and $50,000 to small businesses in New York City. Borrowers must be in the retail, light manufacturing, restaurant or service industry, and existing businesses must have at least three to six months of “verifiable revenue,” according to the organization. Brand-new companies must present a startup budget.
For other small-business financing, compare options on NerdWallet’s small-business loans tool page.
Updated Oct. 26, 2016.
The article Microloans for Your Small Business: 13 Top U.S. Microlenders originally appeared on NerdWallet.