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What is a microloan?

[Nov 13, 2010.]

 

More U.S. consumers are taking advantage of microloans for a variety of reasons. Here are some ways a small personal loan could help:

  1. You have a lot of debt
  2. You need to pay tuition
  3. You want to start a business
  4. You are dealing with a financial emergency,

Small loans can lead to big changes

Microloans are unsecured personal loans given to individuals and small businesses who can't find funding through traditional sources such as commercial banks. Loan amounts can range from $100 to as much as $35,000. Many people associate microloans with poor people in developing countries. Microloans as small as $25 have allowed some of those people to pull their families out of extreme poverty. But microloans are not only for people across the globe.

Microloans in the U.S.

"There are 20 million microenterprises in the United States; an estimated 10 million individuals fit the characteristics of the target groups the microenterprise industry seeks to serve: such as women, minorities, low-income individuals, individuals with disabilities, and those with difficulty accessing commercial credit markets," according to FIELD, an Aspen Institute program focused on policy and research concerning microenterprise.

A 2008 survey found that 59 percent of microentrepreneurs were female, 60 percent were from traditionally disadvantaged backgrounds, and 68 percent had incomes at or below the area median income. Studies also show that loans from microlenders can help people get off public assistance and increase their household income.

How to get a microloan

With so many people struggling because of the economy, microloans have become more popular. Some individuals are turning to online peer-to-peer (P2P) lenders such as Lending Club and Prosper for small loans. The loans are made by pools of investors who agree to fund a portion of the amount borrowed. If you don't have a good credit score or are already carrying too much debt, you may be turned down for a personal loan. A microloan may be a good option for you.

If you are an entrepreneur who needs a loan, there are over 250 programs looking to provide loans to help develop small businesses. In addition to money, you can potentially receive technical assistance, training, mentoring, financial literacy education, credit counseling, technological services, tax preparation and legal assistance. Some programs offer one-on-one training while others provide instruction in a group setting.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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