Many segments of the small business market often require small loans (less that $30,000) that are not a priority to many mainstream financial institutions.  Micro-businesses and sole proprietorships with few assets to collateralize may find it very difficult the secure the capital necessary to take advantage of certain opportunities.  Innovative lending models and new incentives for conventional lenders are necessary to create the access to capital that will allow the small business sector to thrive.

Community-based lending programs and microlending already play a critical role in providing access to capital for small businesses.  Many community development corporations (CDCs) and other nonprofits operate lending programs through which public funding and private grants are loaned to small businesses.  Various other microloan programs are operated by small community groups (such as Main Street organizations), funded by private donations, developer mitigation payments, or other sources.  Even some venture capital investors include small business loans in their portfolio through instruments such as the New Markets Venture Capital program.  

While these programs exist, small businesses may face a variety of challenges in accessing capital through these alternative mechanisms.  Entrepreneurs may not be aware of community lending programs, there may be no such programs in their vicinity, or they may meet linguistic or legal barriers to borrowing.  Some programs may simply not have enough money to loan out to all applicants.  Borrowers may need technical assistance in order to utilize funds effectively.  

There are existing strategies that can be used to overcome these barriers.  Regional community lending and microloan programs are necessary to serve small businesses beyond the reach of CDCs and existing programs.  Conventional lending institutions should provide their expertise to help strengthen community lending programs and should make it standard practice to refer unsuccessful loan applicants to those programs.  State-level lending assistance must reach deeper into communities with large numbers of immigrant entrepreneurs to make them aware of opportunities.  Community lending programs should collaboratively develop protocols for program evaluation in order to document the importance of these programs and identify best practices.  

9.a    MAPC, the Massachusetts Association of CDCs, and academic institutions should establish a “community lending research agenda”

9.b    The region’s philanthropic institutions should collaborate on development of a regional microloan program

9.c    Congress  should restore the Community Development Financial Institutions Fund and the Micro Loan program to 2001 levels, or establish comparable programs

9.d    The Executive Office of Housing and Economic Development should establish a program to provide targeted financing outreach to small businesses owned and operated by immigrants.

9.e    The Legislature and the Governor should invest in successful and proven programs such as the Enterprise Center at Salem State College

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