Microloans gain popularity

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The Columbia Daily Tribune
August 23, 2010

Stimulus funds help businesses.

NEW YORK -- Like many small businesses caught in the worst economic crisis since the Great Depression, Tri-State Biodiesel was struggling to find capital last year, in the middle of a credit crunch.

The Bronx, N.Y.-based company, which converts cooking-oil refuse from restaurants around New York City into fuel that it then sells, was in dire need of an equipment upgrade.

"Banks weren't lending at all," said Brent Baker, founder and chief executive. Baker said he went to three major commercial banks that had financed the company in the past. "Once the crisis hit, applications were suddenly more complicated and lengthy, and they all came back giving us all these euphemisms for 'no.' "

In the end, Baker got a $50,000, three-year loan at a reasonable rate from Boc Capital, a lender that received $750,000 from the federal government thanks to the 2009 stimulus bill last year, to help small businesses.

When President Barack Obama signed the American Recovery and Reinvestment Act into law in February 2009, the law included $56.1 million for microloans for small businesses to be doled out through the Small Business Administration through September.

While some critics complain about the government's economic stimulus efforts, some lenders and borrowers say the stimulus spending that focused on helping small businesses is working.

Targeted toward startup, newly established or growing small businesses, the microloans are short-term loans up to $35,000 each for working capital or inventory and equipment purchases. The intermediary lenders who distribute the loans can choose to lend more than that limit.

Microcredit has become a mainstream practice in the U.S., and the average SBA microloan size is $13,000.

Nationwide, since the Recovery Act was signed, the average total dollar amount of microloans made each month has grown to $3.1 million, up from $2.5 million in 2008. SBA intermediaries made 2,717 loans in 2009.

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