Looking for funding for your startup or business? If you’re an immigrant microloans may be your best option.
When Lorenzo Almanzar, an immigrant from the Dominican Republic, started Future International Corp., his multi-service tax preparation business in the Bronx, N.Y., he turned to the Business Center for New Americans, a nonprofit organization that loans money to immigrants and refugees who want to start and grow businesses.
“This is a good opportunity for you to own and grow a business.” – Lorenzo Alamazar, Future International Corp.
In 2008, Almanzar took out a three-year loan for $25,000 at 10% interest, after successfully paying off a previous $10,000 loan a few years earlier from the organization. The former food industry sales executive says it took some legwork: To apply, he had to gather several years of income tax reports and, with help from a friend in the income tax business, prepare cash flow statements. To prove his ability to pay back the loans, he also had to show he had income from his sales job, where he worked until establishing the business. But it paid off for Almanzar, now working on expansion plans. “This is a good opportunity for you to own and grow a business,” he says.
Interested in a microloan? Here are the basics:
What is a microloan?
Generally microloans are aimed at small businesses that need to borrow from $500 to $50,000. Both new and existing businesses can apply. You can get microloans from nonprofit lending organizations such as Accion USA, the nation’s largest microlender, through community development organizations and through commercial websites. Interest rates vary with the lender, the loan size, and your credit history. At Accion, they were 8.99% to 15.99% in August 2011; at Business Center for New Americans, they range from 8% to 10%. By comparison, if you took out a bank loan for $25,000 or less that was backed by the Small Business Administration and was due in seven years or less, the maximum interest rate was 4.25% plus the prime rate (3.25% in August 2010), for a total of 7.5%.
Don’t expect microlenders to lend you $50,000 the first time you approach them. “Our average is a three-year, $6,000 to $7,000 loan,” says Ana Hammock, Director of Lending at ACCION USA. “Normally people start small and then they graduate to bigger loans.” Microloans generally are reported to credit bureaus, so if you do a good job of repaying your loan, it should boost your credit score.
How can I apply for a microloan?
Each microlender has its own detailed requirements so you’ll need to call or visit each one to find out what they are. Accion’s rules are pretty typical. While many microlenders are not considering start ups, ACCION will consider new businesses that are home-based. If you are starting a home-based business,” you will need to provide a business plan,’ says Hammock. You will also need to prove you have secondary income so you can pay off the loan while you get the business up and running. Typically, that means providing a copy of your tax return or pay stubs. Microlenders expect you to pay taxes on the income you generate, so you’ll need to show that you have a Social Security number or Individual Taxpayer Identification Number. They will also want to see that you are working to establish a strong credit and banking history, so you may be required to open a savings account at a bank if you don’t already have one.
What other requirements are involved?
Microlenders often expect borrowers to participate in classes or other educational programs to help them run their businesses as profitably as possible. ACCION for instance, wants borrowers to learn how to create budgets and handle cash flow statements. Microlenders will also expect to stay in close touch once you get a loan, to make sure you are running your business effectively. “Very often the staff will go and visit the client,” says Yanki Tshering, director of Business Center for New Americans. “You can tell so much from visiting the client at his or her place of business.”
Are there special considerations for immigrants?
Don’t worry if you don’t speak English well. “You don’t need to speak English at all to do business with us,” says Hammock, noting that ACCION, like many microlenders, has a multilingual staff.
You also don’t need to worry if you haven’t established a credit history in this country. Microlenders will often work with you. Some, for instance, have credit-building programs in which you can borrow a small amount, such as $500, and pay it back over a short period, such as six months. Once you have proved you will repay it, they will be willing to consider making a microloan to you. They don’t always advertise these programs, so when in doubt, ask if there is one.