U.S. Small Business Administration’s Microloan Fund
The U.S. Small Business Administration (SBA) started its Microloan Program to provide very small loans to start-up, newly established, or growing small businesses. The SBA makes funds available to nonprofit community-based lenders (intermediaries), such as community development financial institutions (CDFIs), which make loans to local eligible borrowers in amounts up to $35,000 with a term of no more than six years. Each intermediary is required to provide business-based training and technical assistance to its microborrowers.
The SBA Microloan Program, the largest domestic microenterprise program in the nation, was authorized in 19911 with the clear mission of linking small loans with technical assistance to start-up and emerging businesses that conventional banks cannot serve. The program was designed with the idea that local nonprofit intermediaries, experienced as lenders and technical assistance providers, could effectively reach and serve the needs of very small businesses and eventually move them into the economic mainstream as bankable ventures.
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The SBA Microloan Program has grown to a network of 166 community-based intermediaries and has financed more than 26,000 loans worth approximately $328 million to small entrepreneurs, with an average loan size of $13,000. The SBA Microloan Program has one of the lowest costs per job created or retained of any federal program, and the technical assistance component has ensured that the loan default rate is almost zero percent. Since it began, the SBA Microloan Program has created or retained more than 64,000 jobs at a cost of approximately $4,700 per job.
This is an excerpt from The NEXT American Opportunity. The full text can be downloaded as an Adobe PDF Document.
