What is it? Micro-finance is the lending of small amounts of money to help new business start-ups, often specifically intended for businesses started by, or that serve, low to moderate income residents. Microfinance programs are usually intended for individuals proposing a new business, who may not be able to access a traditional loan. For example, individuals may have a plan for a viable locally-focused enterprise (such as a food truck, flower shop, or crafts store). However, for a variety of reasons, the business may not be an ideal fit for conventional financing sources. The amount sought may be too low, the owner may not have enough financial collateral or prior business experience, or the business may be considered too high risk (such as a restaurant). Organizations may offer micro-financing to make the dream of business ownership possible for these entrepreneurs. Often, the programs also include business training or other services to better facilitate the success of the new enterprise. Microfinance programs foster new business ideas and help create a thriving entrepreneurial climate.
How has it been used? United Virginia operates a micro-finance program in Virginia. The organization uses a community-based approach to encourage new enterprise development in under-resourced communities. Staff and partner organization offer intensive business training. When an individual, or group, has prepared a viable business plan, United Virginia tries to help find financing solutions that meet their needs. In some cases, United Virginia will step in and offer a small start-up loan directly to participants. Loans are awarded after the application and business plan has been approved by a community panel. As the largest micro-finance lender in Virginia, the organization has helped many ideas get off the ground. (Source: United Virginia)