Both banks said they are reducing or eliminating funding this year and into 2010. In an effort to continue current lending rates, Project Enterprise is closing one of its centers.
Accion Chicago, a microlender serving the Chicago area, distributed 121 loans totaling more than $1 million in 2008. That’s up from 113 loans valued at just under $1 million the previous year, for the Accion USA, affiliate. Accion USA is the largest microlending network in the United States.
Through the Community Reinvestment Act (CRA), which encourages banks to invest in low and moderate-income neighborhoods that they operate, Accion Chicago has secured steady funding for its loan program. “Instead of physically doing the lending themselves, [banks] give us lines of credit and we loan out the money to low income areas,” says Susan Spector, a community outreach coordinator at Accion Chicago.
Even with the credit crunch, Spector says financial institutions are still required to allocate CRA funding.
Aside from capital infusion from banks, donations, fundraising, the Small Business Administration is another source of capital for microlenders. In 2008 the SBA, which regulates microlenders, distributed $19 million in money to microlenders in 2008, up $1 million from the previous year.
The administration will also receive of boost from President Barack Obama’s budget which earmarks $25 million to its microloan operation. The much needed capitol comes as overall, microlenders distributed less money in 2008, $31 million, compared to $32 million, says George Dale, chief of the SBA’s microenterprise development branch.
But, it’s not all about the capitol reminds Ignas of the Association for Enterprise Opportunity.
“To compete you need to know how to run your business,” Ignas says. “If you don’t know how to market yourself, manage your staff or finances, your business will not work.”