Discussion of small business lending often focuses on large amounts of money that enable a business to start or grow. However, there is an alternative funding model that has been gaining steam: microloans. Microloans have been popular in the developing world for years, but are beginning to catch on in the United States. These loans, typically in sums less than six figures, are often provided by a non-profit organization or individual, and have very low interest rates and long timelines for repayment. The idea is that the amount of money lent is relative to the venture and geographic location; while a large tech company may need millions of dollars for startup costs, research or expansion, smaller companies can make big changes with modest amounts. Investments of this type can go a long way in helping small businesses, providing them with necessary capital at an acceptable financial risk.
In Philadelphia, microlending has already shown signs of success. In an article published by The Philadelphia Citizen, the process of microlending is explained through the story of Little Baby’s Ice Cream. When the company was looking to expand to Baltimore, they lacked the necessary funds to complete the move. A friend and consultant for the shop found out they needed a loan, and offered $5,000 at a tiered interest rate. In total, Little Baby’s Ice Cream paid $500 in interest.
The lender was inspired by the arrangement and, instead of taking a profit from the interest, matched the repayment total and created a fund that would be awarded to another Philadelphia business in need of a microloan. The funds went to the winner of a grant application that was also created by the lender.
Though Philadelphia has its share of economic hardships – including 27% of its population living under the poverty line, a lack of high-paying jobs, and high unemployment rates – its communal and entrepreneurial spirit, demonstrated by the Little Baby’s Ice Cream microloan, is helping empower small businesses. This sense of community has made Philadelphia a standout in ICIC’s Inner City Capital Connections (ICCC) program. As of 2015, 66 Philadelphia-area businesses have completed the ICCC program, raising $34,950,000 in capital and creating 280 jobs. In many cases, alumni go on to do business with each other and refer other businesses into the program.
The microlending trend and established programs such as ICCC can work symbiotically to return economic livelihood to cities like Philadelphia. By nurturing entrepreneurs and providing them resources to grow, even in seemingly small amounts, inner city areas will see more businesses create good paying jobs and grow at faster rates.
While microlending may seem insignificant at a time when talk of startups and venture capital dominates the business world, it has an important role to play in helping small businesses weather uncertainty and survive long enough to get to the next level. If a business can get small loans to begin or expand operations, it can lead to participation in programs like ICCC, where the education and connections they receive will help them continue to grow and thrive.
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