Microloans Under the Microscope


Share this article! What’s a microloan? A microloan is what it sounds like: a small loan. As a general rule, it refers to a small-business loan made to an entrepreneur looking to get started or grow their business. How small does a loan have to be to qualify as a microloan? It depends who you … Read more

What’s a microloan?

A microloan is what it sounds like: a small loan. As a general rule, it refers to a small-business loan made to an entrepreneur looking to get started or grow their business.

How small does a loan have to be to qualify as a microloan?

It depends who you ask. The U.S. Small Business Administration’s microloan program provides direct loans to nonprofit intermediary lenders to make loans of up to $50,000. In Oregon those intermediaries include the Oregon Association of Minority Entrepreneurs Credit Corporation, Micro Enterprise Services of Oregon and Mercy Corps.

But not all microloans are made with SBA funds, and other lenders have different guidelines. Kiva, the crowdsourced microloan platform that made its name in the early 2000s by making it easy to fund business loans in the developing world, caps loan amounts at $15,000. The Oregon Micro Fund makes loans between $5,000 and $250,000.

In Fiscal Year 2021, the average SBA microloan was $16,557, with an average interest rate of 6.55%. FY2022 and FY2023 interest rates will be higher due to interest rate hikes by the Federal Reserve: The SBA’s website says interest rates vary depending on the intermediary lender but are between 8% and 13%.

MAIN STORY: SMALL BUT MIGHTY

How long has microfinance been around?

The concept of small-scale loans dates back centuries, but the modern microcredit movement emerged in 1970s Bangladesh. That country’s Grameen Bank — which started in the mid-1970s as a pilot project, making $27 loans to 42 families affected by the 1974 famine — is considered the first modern microlender. While microlending efforts have had mixed results in other parts of the world, Grameen Bank still boasts a repayment rate of more than 90%.

The microcredit movement spread around the world in subsequent decades, finding footing in the United States in the 1990s. In 1991 the federal government authorized the SBA’s microloan program as a five-year pilot program; it became operational in 1992 and in 1997 became a permanent federal program, though it is subject to annual reauthorization.

How many microloans are made in the United States in a typical year?

The lending environment of the last three years has been anything but typical, but some recent numbers from the SBA — offered with the caveat that the SBA is not the only provider of microloans in the U.S. — can shed some light. In Fiscal Year 2022, microlenders provided 5,055 microloans in the United States, totaling $82.6 million. The number of microloans in FY2022 was up from FY2021, when 4,510 loans were made. (FY2022’s number was down slightly from FY2020, when 5,890 loans were made; the number of SBA microloans had been trending upward since 2015 until that year.)

How many microloans are made in Oregon in a typical year?

According to data provided to Oregon Business by the SBA’s Portland office, in FY 2022, the SBA approved 160 microloans in its Portland district, for a total of $1,275,045. That means loans made in the district account for 3% of microloans made through SBA’s program. The funds went to four participating microlenders:

Oregon Association of Minority Entrepreneurs Credit Corporation (OAME) 88 approved loans
Micro Enterprise Services of Oregon (MESO) 61 approved loans
Seattle Economic Development Fund (dba: Business Impact Northwest) 6 approved loans
Mercy Corps 5 approved loans

— Christen McCurdy