"Microenterprises" Find Financing Support
Sometimes a little bit of money and know-how are all it takes to turn an idea into a successful microenterprise. Reign Free (pictured, right) was living out of her car in 2005, when a neighbor lent her $7,000 to jump-start her San Francisco Bay Area business. The Red Door Catering has since grown from a one-woman operation to a 20-person company with two locations in Emeryville and Oakland, Calif.
Free says the loan encapsulates "the idea of a community as a village." When her neighbor and friend asked her what she wanted to do if she had "X amount of dollars," Free recounts how she started going down the list. "I realized how organized in my head I was about my vision, and she said, 'OK,' and she gave me a check."
Microenterprises such as Free’s — or companies that launch with less than $35,000 in capital and fewer than five employees — account for 88 percent of U.S. businesses and sustain one-fifth of the nation's workforce. Recognizing how essential microenterprises are to the economy, development organizations are working harder than ever to encourage and support these entrepreneurial ventures.
Consider the independent food-truck operator and the home-based pet-sitter. “These are very small enterprises — far smaller than the SBA standard, which considers companies of 500 employees or less to be a small business,” says Teresa Lemmons (pictured, left), executive director of the Washington State Microenterprise Association, a nonprofit network of microenterprise development organizations. The association in 2007 successfully push for the passage of the state’s Self-Employment Assistance Program. The law allows micro-entrepreneurs to collect unemployment benefits while preparing to launch a business, as long as they engage in an entrepreneurial training program.
Lemmons advocates for teaching entrepreneurs how to access new markets, helping them understand marketplace dynamics, and steering them through "the complexities of the small-business startup and ownership process." Those core activities define the mission of many microenterprise development organizations, she says.
With housing and mortgage issues complicating entrepreneurs’ access to capital, micro-enterprise development organizations fill an essential niche in the business ecosystem, Lemmons says. "I don't think we really fully have a culture of entrepreneurship, where we've embraced innovation and creativity and accept small-business ventures in our society," she says. "I think we've got to combat that."
When neighbors or friends cannot help with financing, microenterprise development organizations assist business owners in obtaining microloans. The organizations grow their capital pools through grants, philanthropy, or fundraising — allowing them to approve microloans with less restrictions than a bank would require, Lemmons says.
"They are able to be more flexible with their lending. They can do more character-based lending, they can take higher risks, and they can be more fluid and flexible with their borrowers," Lemmons says. For example, with collateral requirements, repayment terms, and costs of the loans, they have an opportunity to be clever about how they operate their lending programs.
Lemmons says this type of outside-the-box thinking also includes bartering. "I'm not saying microenterprise development associations are running barter systems, but there are ways in which entrepreneurs can be creative in starting their own businesses on basically the whole shoe-string concept."