Micro businesses have big outlook yet face “credit cliff”

150 150 John Guenther

Anda Piroshki in San Francisco, serving Russian-style piroshkies, borsch and Russian tea, was partly funded by microlender
Working Solutions. (Photo credit:
Gary Stevens via Flickr)

After being hit with a recession double whammy of low sales and a tight credit market, micro businesses in the U.S. are now more optimistic these days and are ready to hit the gas, a new survey showed this week. Yet, they may be driving towards a fiscal cliff of their own when they go looking for the credit needed to grow or simply stay afloat.

It’s easy to see why micro businesses are a major engine in the economy: Companies with 10 or fewer employees make up 95 percent of all small businesses in the U.S.

Most of the businesses surveyed, at 67 percent, said they expect to do well in the next two years in a survey released by the Association for Enterprise Opportunity, the National Association for the Self-Employed and Small Business Majority.

“This poll confirms what we see on the ground, that microbusiness is big business,” said Heidi Pickman, spokesperson for CAMEO, the California Association for Micro Enterprise Opportunity, a group that provides development support for micro businesses. “In 2011 our members served 21,000 businesses responsible for $1.5 billion in sales. Last Friday, an owner of a skincare company told me her business tripled from 2010-2011 and almost doubled from 2011-2012 and this year she’s expanding.”

Half of the owners said their micro-businesses are “doing well” or “very well” and expect to hire people in the near future. Almost 70 percent of micro-entreprenuers under 40 reported doing well currently.

But, as the tight credit market is stunting the recovery in California, that situation is especially difficult for micro businesses owners, who can end up using personal assets to keep going. A majority of the businesses surveyed said they will need large loans in the next few years. Unfortunately, 40 percent of them were denied credit when they sought it out in the last two years.

“Big banks have really pulled back on loans under $250,000,” said Pickman. “There are alternative lending sources available, such as microlenders and community development financial institutions (CDFIs) – non-bank lenders, but more small businesses need to know about them.”

CDFIs are private lending organizations that focus on supporting business development and providing personal business loans in local communities usually underserved by traditional banks.

“CDFIs usually have more flexibility with their collateral requirements and offer reasonable term; businesses still need to show positive cash flows,” added Pickman. “Many of the CDFIs also provide small-business coaching and other professional resources—legal, accounting, and marketing among others—to further the growth of their small business borrowers.”

The California Economic Summit has prioritized access to credit as a tentpole issue and is working on several actions to help small businesses, including developing structures that can receive funds from foundations, banks, insurance companies, CalCap and State Loan Guarantee Programs for investments in non-profit CDFIs.

On top of that, a handy guidebook for small business called “Access to Capital” (PDF) was created by the California Financial Opportunities Roundtable (CALFOR) and covers a plethora of ways to raise capital, including the hot topic of crowdfunding. 

And with three-quarters of the surveyed owners saying their micro business was their sole source of income, squeezing credit out of this market is vital to driving out of this recession. 


John Guenther

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