Small Business Financing Option: Non-Profit Microlending Organizations

When discussing small business financing, the average person is going to think in terms of a bank, or traditional lending institution. Some in the business world will think of the old smoke-filled room full of private investors that wants a portion of future profits for loan consideration. As a business advisor, I have often found myself suggesting non-profit microlending organizations as a way to help a small business get over a bump in the road. Until recently, there were few outside of the international establishment community that had heard of microlending. With the downturn in the economy, non-profit microlending institutions are becoming a more popular way for small businesses to get the financial support that is needed to help their company out of the current financial crisis, or to take the small business to the next level.

Microlending, began gaining prominence a few years ago as philanthropists began pooling money together to help small businesses in developing countries. With the economic downturn in the United States, many of the non-profit organizations that were helping to establish trade markets in developing countries turned their attention to helping small businesses here.

Microlending is usually done through a non-profit microlending organization, not a bank or traditional financial institution. Instead of basing your loan consideration solely on your, or your small business’s, credit score, most non-profit microlending organizations base the majority of their decisions on a small business’s ability to pay back the loan.

Most non-profit microlending institutions offer a maximum of a $50,000 loan. While this will not usually help a person start a small business, it can help many small businesses on how to create an invoice that are currently having issues with inventory production, completion of a move or build, or help pay for machinery that will help a small business grow.

Unlike a traditional lending institution, non-profit microlending institutions are more likely to have more leeway with establishing a loan that a small business would be able to afford. Since this type of a lender is not searching for a profit, a small business is more likely going to have a contract drawn up that will allow for some future possible dips.

Unlike going to a private investor, a small business owner that is looking for a small amount of financing does not have to worry about having to give over a portion of future profits to a non-profit microlending organization. Turning over a portion of future profits, or overall interest in the company, can sometimes be the nail in the coffin for a small business.

In the sources section of this article, I have linked a few other locations where you can read articles about microlending, a few examples of non-profit microlending organizations, and a few more explanations on how microlending can work for your small business.

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