Microlenders take a chance on small businesses that can't win bank approval

from the New york daily News

BY PHYLLIS FURMAN
DAILY NEWS BUSINESS WRITER

Dina Tate wanted to get the word out about Blackbridalguide.com, her 2-year-old online store focused on African-American brides and grooms.

She tried a number of banks and asked for a $3,000 loan to help revamp her Web site and fund an Internet ad campaign.

They turned her down.

"They basically said I was a startup," said Tate, 35, of Stuyvesant Heights, Brooklyn. "They wanted to see more revenue. I said, 'How can I show you more revenue when I'm just a startup?' "

One lender, Citibank, recommended that she contact Accion New York, a nonprofit microlender that provides small loans to business owners.

Accion, the city's largest microlender, approved her application, allowing Tate to advertise in time for her peak selling season. Sales jumped 20%.

Microloans, which typically range from $500 to $35,000 and are often doled out by nonprofits, are helping entrepreneurs citywide build day care centers, spruce up storefronts, outfit restaurants and launch beauty salons.

"It's important for people to understand that there is this source of capital," said Paul Quintero, interim CEO of Accion New York. "Microloans are credit for the unbanked or underbanked."

Accion sees itself as an alternative to loan sharks - prestamistas, in Spanish - who often prey on immigrants by offering very high-interest, illegal loans.

While the city doesn't collect data on the growth of microlending, demand and available capital are clearly on the rise. Last year, Accion New York doled out $17 million in microloans, up fourfold from 2001. Other local microlenders include the Business Outreach Center, the New York Association for New Americans, Project Enterprise and Women's Venture Fund.

The microlending movement was thrust into the spotlight last year when Bangledeshi economist Muhammad Yunus won the Nobel Prize for his work in microcredit.

A good place to learn more is at one of the city's Business Solution Centers, which "offer business owners and entrepreneurs free one-on-one assistance in preparing loan packages, get financial statements and credit reports in order, and seek out loans with terms that meet their needs," said Rob Walsh, commissioner of the Department of Small Business Services.

While a bank will scrutinize credit history, microlenders may focus on other factors, especially a borrower's business plan.

"You'll need to help us understand your business," said Nancy Carin of the Business Outreach Center, which has offices in all five boroughs.

Microloans generally cost more than bank loans, though some subsidize rates with grants. Accion's rates range from 11% to 18%, and Business Outreach Center's rates are about 8% to 12%. Banks charge around 9.25% to 11.25%.

Default rates on microloans are low: 7% for Accion and 5% for the Business Outreach Center. Microlenders claim that's mainly because they help borrowers draft business plans, and with budgeting and marketing.

Amu Ptah, who runs a consulting firm for nonprofits called PtahWorks, recently attended an Accion seminar at Polytechnic University in Brooklyn. Ptah, 35, of nearby Clinton Hill, knows she can't turn to a bank. "My personal credit needs help," she said.

Another entrepreneur at the seminar, Ora Matthew, 42, was thinking about tapping her retirement fund, but looked into microloans instead.

Matthew, of Mt. Vernon, wanted help launching a home-based spa. Microlenders "cater more on an intimate level," she said. "They don't just give you money and leave you stuck."