Small Businesses Turning to Microloans to Stay Afloat
When the bottom fell out of the lending market in late 2008, banks drastically reduced their willingness to lend even to well-qualified applicants as a hedge against the record losses in the industry.
Small businesses that wanted to borrow to grow or modernize suddenly found themselves without the credit they needed. They were facing a status quo. Other businesses were facing sharp drops in revenue and needed the loans to keep their business going - even after trimming their budgets to the bone.
The American Recovery and Reinvestment Act of 2009 included a provision that allowed for microloans to be made to small businesses of up to $35,000. These funds could be used for working capital or equipment purchases. The idea is that this money would allow businesses to spend the money necessary to increase profits and create jobs.
Loans are disbursed through 20 lending intermediaries designated by the US Small Business Administration according to specific lending guideline, which reduce both the risk to the lender and the interest rates for the borrower.
The Wall Street Journal reported that small businesses in and around New York City turned to Boc Capital, a lender that saw an increased demand once the program went into effect.
In the case of Brent Baker, a $50,000, three-year loan from Boc meant that he could expand his business after being turned away from other banks, according to the Journal report.
Amanda Keppert, of San Jose, Calif. told the New York Times that she is sure she would have lost her hot dog stand, Mandy's Korner, if it weren't for her microloans.
“My business was drowning and I was afraid it would go under,” Ms. Keppert told the Times.
She eventually obtained a $6,500 loan that allowed her to buy an ice maker, a generator, and large signs.
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