II. Supporting Small Business Advancement and Job Generation
The government and Small Business Administration should continue to invest in the infrastructure development and funding capacity requirements of micro-credit organizations that provide startup and expansion financing to U.S. based micro-entrepreneurs and self-employed entrepreneurs.
Invest in infrastructure development for micro-credit organizations for U.S. lending activities
The concept of providing small uncollateralized loans to enable poor individuals to start sustainable micro enterprises has become known to the U.S. business community through the pioneering work of 2006 Nobel Prize co-winners Muhammad Yunus and the Grameen Bank.
Starting in Pakistan in the late 1970’s, the Grameen Bank demonstrated the value of granting small “micro” business loans to startup entrepreneurs as a way to raise personal incomes and generate new economic activity in the world's most impoverished regions. There is a close correlation between the activities of the Grameen Bank and the drop in Bangladesh poverty levels from 58% to 29% in recent decades. A World Bank study reported that Grameen Bank clients were escaping poverty at the rate of 10,000 per month.
Because of the transforming power of micro-lending programs and loan repayment rates between 95% and 98%, micro-lending has spread to Asia, South and Central America, Africa and North America.
Micro-lending in the U.S., however is less common and underutilized as a tool for providing affordable credit to self-employed entrepreneurs of any income level. Currently there are approximately 16 million self-employed individuals in the U.S. While there is no academic research available, it is highly likely that the large majority of self-employed individuals are not aware of the benefits of micro-lending programs to help increase the scope of their operations.
U.S. micro-lending programs can provide first loans of approximately $500 to $1,000 for business startup or business advancement requirements. With successful repayment and business progress, entrepreneurs can continue to borrow funds often up to $30,000 at interest rates that are predictable and below that of standard credit cards. The average loan in the U.S. is $7,000. These organizations also provide low cost or free business development training courses to help borrowers develop product and service businesses in cleaning services, specialty food, child care, computer services, clothing, jewelry and gift retailing.
Impact studies confirm the viability of micro-lending programs in the U.S. Business survival rates are comparable to national averages -- 57% after five years for micro entrepreneurs versus 33% for general population businesses after seven years in business. Studies also demonstrate improvements in median household incomes and reductions in public assistance for lower income borrowers.
TakeCommand recommends that the government continue to advance the capacity and geographic reach of U.S. micro-loan programs through the Small Business Administration’s Microloan and PRIME programs. We encourage greater resource commitments for providing lenders with funds for infrastructure development, program assessment, training and service expansion. We’d also like to see increased public awareness of micro-loan availability as a favorable alternative for entrepreneurs who can’t obtain business loans due to lack of credit history, collateral or other traditional banking products.
