Think You Don’t Qualify for Small Business Financing? Think Again
Geri Stengel, WE NYC Mentor
Geri Stengel - Ventureneer

Starting your own business could be the way for you to support yourself and your family. But when you’re poor, you don’t have the same opportunities to finance the business. Traditional banks turn up their noses if you don’t have collateral or a good credit score.

One man’s trash is another man’s treasure. Organizations have emerged that specialize in lending small amounts to businesspeople overlooked by traditional banking institutions. For example, you can get a loan from Grameen Americaeven if you don’t have collateral or credit. Grameen’s founder, Muhammad Yunus, received a Nobel Peace Prize in 2006 for pioneering making small loans to poor women, which he began doing in 1976 in Bangladesh. In 2008, Yunus brought the microlending model to the United States.

Why microlending works

People were skeptical that a financing model from the developing world would work in the developed world. But it has proven successful. Grameen has served 75,000 people – 41,000 in New York City – making 200,000 loans. Most of the borrowers are women. Traditional banks would kill for Grameen’s 99% repayment rate, says Andrea Jung, president and CEO.

The reason for Grameen America’s success include:

  • Loans are small and manageable.
  • Loans are repaid in a short amount of time – typically six months.
  • Every week, groups of five entrepreneurs meet with a Grameen loan officer in a member’s home to make loan and savings payments. During meetings, peers learn about running a business from each other and hold each other accountable.

Jung understands the power of a microloan. Her immigrant grandmother used an informal microloan to start a hair salon, from which she made enough money to send Jung’s father to MIT. In 2014, Jung became CEO of Grameen America to use her corporate skills – which she honed as CEO of Avon – to scale this powerful financing model.

If you have given up looking for financing because you believe banks won’t be interested, maybe it’s time to look into microlending.

Geri Stengel

Am I qualified?

In the U.S., Grameen serves women who live below the federal poverty line and for whom the mainstream financial system is currently out of reach. Women frequently have been victims of predatory lenders; Grameen protects women from this possibility. As part of the program, borrowers open free savings accounts and make weekly deposits. Microloan repayments are reported to Experian, a credit scoring company, so women build or repair their credit scores. On average, a woman who joins with no prior credit history can achieve a credit score of 670 in just six months.

How women are using Grameen loans to grow their businesses

Susana fled a violent relationship in Mexico City. She came to the United States where she rented a chair in a salon to do makeup. Susana had bigger ambitions and opened her own salon. To purchase supplies, she used a credit card that charged her 30% interest. Soon she found out the landlord had misrepresented the building and she had to leave.

Her luck changed when she found out about Grameen America. Susana borrowed $1,500 to fix up a new location. She used additional loans to add a manicure and pedicure station, print business cards and build a website. She remarried a supportive husband and has become a United States citizen.

Maria quit her job to help turn around her husband’s tire business. Rather than focus on selling used tires, she determined the best way to grow was by selling new tires. She financed inventory with eight loans from Grameen totaling $31,500. Revenues have increased by $1,400 per week. To handle the increased demand, she has hired employees from the community. Maria and her husband are also now saving to send their three children to college.

These women were able to grow their businesses and achieve success that would have been impossible if they had tried to work within the traditional lending environment. If you have given up looking for financing because you believe banks won’t be interested, maybe it’s time to look into microlending.