Small business owners increasingly using microfinancing to help create corporations

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Entrepreneurs are now using microfinancing more than ever as they try to get the capital they need to create a corporation without taking out traditional bank loans, according to BusinessWeek.

A recent survey by the Aspen Institute found that over the last two years, loan applications at microfinance groups have risen by 66 percent.

Experts told the news source that while microfinancing’s total economic impact is small in terms of the overall amount lent – $68.6 million in 2008 – it can have a tremendous impact on the small business owners it helps.

“There’s a class of potential loan recipients for which microfinance really works,” Sean Foote, a University of California microfinance professor, told the paper. Foote added that the average loan has a maximum amount of $35,000, and helps a business owner who may have a solid business plan, but minor problems on his or her credit report.

The SBA also runs a microloan program, which it aims at small businesses and nonprofit childcare centers and manages through nonprofit community-based organizations.

SBA microloans can be used for working capital or the purchase of equipment or supplies, but are not designed to pay off debts or buy real estate.