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Three takeaways from a long-term study of U.S. microfinance

There are about 30 million small businesses in the U.S. That’s 50% more than 35 years ago. Many small-business owners, especially women and ethnic minorities, lack the collateral, financial documentation or strong credit history to quality for a traditional loan. A new study commissioned by Accion and Opportunity Fund, two long-time U.S. community development financiers, tracked the impact of micro-loans (most under $10,000) to 350 borrowers over three years.

  • Micro-borrowers have a better survival rate than the average business. Ninety-four percent of the borrowers were still in business at the end of the study. (Only 89% of all small businesses survive their first year). After five years, 61% of the micro-borrowers were still in business (vs. 50% on average).
  • Access to credit helps small firms grow. More than half of the firms studied reported rising profits and 60.2% reported sales growth by the end of the study. The proportion of small business owners that reported having a business credit card rose seven percentage points to 65.2%.
  • Micro-loan borrowers create better jobs. The cohort created 335 new full-time jobs during the study period. Businesses offering no benefits to employees fell by more than half, from 48% to 22%. About half of those who already offered at least one benefit added one or more a year later.

Still, many small businesses, as revealed in the study, struggle to manage business cash flow. For these business owners, say the authors of the study, “a financing structure that allows for greater repayment amounts in months with higher revenue and smaller repayment amounts in slower months may be beneficial.”

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