Microcredit use increasing in the U.S.

MIAMI - Do an Internet search for microcredit and images of colorfully dressed women in Africa, South Asia, and Central America pop up. But this global trend that began more than three decades ago in Bangladesh is finding a home in the United States.

In cities such as Miami, New York, Houston, and Los Angeles, mostly immigrant and minority entrepreneurs are turning to microfinancing. The loans, generally provided by nonprofit groups, can serve as stepping stones to more traditional sources of credit and are often the difference between success and failure for small-business owners who may have nowhere else to turn for money to build a business.

"You know this 'Buy Local' movement? There's starting to be this 'Lend Local' movement," said Premal Shaw, president of the nonprofit Kiva, which allows individual donors to select a micro entrepreneur online.

For smaller start-ups, especially those owned by minorities, it can be tough to get the financing to expand a business. Just under a quarter of nonminority firms whose total revenue was less than $500,000 received loans, compared with 17 percent of minority firms, according to government figures. And banks have become pickier about whom they lend to since the financial crisis began in 2008.

Activity among microlenders, however, has been gaining steam. The number of microloans disbursed increased 25 percent between 2008 and 2010, according to a study by Washington-based think tank the Aspen Institute's FIELD program. Female entrepreneurs are the most likely to turn to microloans.

Lynette Tyner was a struggling African American fashion designer from New York. She used $10,000 in loans from nonprofit microlender Accion to buy machinery and open a studio and retail store to sell her denim outfits and bags. She now sells her designs online and through New York wholesalers.

Financial literacy classes, mentoring, and other training are often part of the microlending program.

"I was able to meet some great people and get priceless advice for my business, like the editor-in-chief of Glamour Magazine and the CFO of Ralph Lauren," Tyner said of the extra support Accion provided.

Microloans tend to range from $500 to $10,000, but can be as much as $50,000, with interest rates varying from 3 percent to 18 percent. Credit standards tend to be lower than those of banks and other financial institutions. The loans are processed quickly. Individual donors who lend to entrepreneurs on Kiva don't earn interest, or profit, from the loans.

Going through traditional channels is nearly impossible for many small entrepreneurs. The U.S. Small Business Administration guarantees loans averaging $330,000. It has a small microloan component, but even there, loans average about $13,000.

It doesn't make much financial sense for banks to spend time with clients seeking much smaller loans, said Paul Quintero, CEO of the international microfinance nonprofit Accion East, but that's where organizations like his can act as intermediaries by bundling the credit.

Margarita Briones worked for decades in restaurants and other jobs before striking out on her own with a flower stand across from the Miami Marlins stadium in Little Havana. Five years ago, she got her first microloan from Miami-based OUR Microlending to expand her selection and improve the shade that protects her cart from the South Florida sun.

"Sometimes I earn a little, sometimes a lot, but I'd rather be out here in the sun, my own boss," she said. "I am very grateful that they helped me do that."

Her children thought the loan offer was a scam, but the Nicaraguan immigrant had tried to take out bank loans to no avail and pressed on. She repaid her $3,300 loan plus interest within a year and has taken out three more.

Getting even small loans is tough for Americans facing foreclosure or who have otherwise seen their credit suffer in the weak economy.

John Giraldo and his wife, Francy Bedoya, were in that group. In 2008, they began selling brightly colored smartphone cases wholesale. The Colombian-born couple initially worked out of their garage before renting a small office and warehouse. To expand, they needed cash, but Giraldo's credit rating was dismal after a foreclosure.

"The banks wanted us to show our business had been running for at least two years before we could get a loan," he said. "We couldn't do that, and with my credit shot, we had no chance."

They heard about OUR Microlending. Francy Bedoya got five loans for more than $9,000 to expand inventory and later to rent a larger office.

The company, Movil Wireless, now ships throughout South Florida and to a few other cities across the country and to Colombia. The couple are looking for a larger bank loan to expand their merchandise and offices.

Getting loans can make a big difference in entrepreneurs' lives. A 2008 survey by the Aspen Institute found the average household income of families participating in a microenterprise program rose 20 percent to $36,000.