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Policy Library

Micro-businesses Create Jobs And Support Job Growth

Micro-businesses with 5 or fewer employees are a particularly important source of new jobs across the country, a frequent source of entrepreneurship, and can be a successful way to support women, veterans, and people of color entering business ownership. Despite this, micro-businesses often face the most difficulty accessing the capital needed to start up and expand. The Support Micro-Business Act establishes a revolving loan fund for micro-businesses and helps bring micro-finance firms and their proven technical expertise to states and communities where these critical resources are not currently available.

The National Landscape

Passed in:

New York

In The News

“'Today, for a number of reasons, many banks don’t want to deal with a business loan under $250,000 or a business that doesn’t have a couple million dollars in annual revenue. Both would have disqualified my father—although he had a successful, growing business.'”
“In 2003, eight Latina immigrants launched Natural Home Cleaning with a $14,500 loan.”
“He was getting more customers than he could handle as a one-man operation, but he couldn't afford to hire more workers. And he didn't have the kind of credit rating that would make it possible to get access to traditional business loans.”

Partners

  • Small business owners
  • Entrepreneurs
  • Micro-lenders

Opposition

None noted
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FAQ

Who does this help?
This bill helps micro-businesses, defined as businesses with 5 or fewer employees, to expand. Micro-businesses are some of the largest job creators, but have the hardest time accessing the credit needed to grow. By helping the smallest small business expand, this bill helps starting entrepreneurs and their families and helps the whole state economy.
How is this so low cost to the state?
Because this bill establishes a revolving loan fund, loaned funds are returned to the state so they can be re-lent to additional businesses and generate further economic growth. Further many micro-businesses can be assisted with small loans of between $5,000 and $25,000, meaning the incremental costs are low to have a significant impact.
How does this increase wages and help people find jobs?
Micro-businesses are a critical job generator, often producing more net new jobs compared to larger businesses. By helping these businesses expand, states can create more jobs and improve competition, helping all workers.
Print

Model Policy

SECTION 1 (TITLE):
This act shall be known as the Support Micro-Businesses Act.

SECTION 2 (PURPOSE):
This act creates a state revolving loan fund to support micro-businesses, and directs efforts to attract micro-lenders specializing in support for micro-businesses to work in STATE.

SECTION 3 (PROVISIONS):

(a) The micro-business revolving loan fund program is hereby created. The Department is directed, subject to appropriations, to establish a [$5-10 million] micro-business revolving loan fund, to provide low interest loans to community development financial institutions, in order to provide funding for those lending organizations' loans to micro-businesses located within STATE, that generate economic growth and job creation within STATE but that are unable to obtain adequate credit or adequate terms for such credit. If the use of a community development financial institution is not practicable, then low interest loans may be provided to the following other local community based lending organizations: small business lending consortia, certified development companies, providers of United States department of agriculture business and industrial guaranteed loans, United States small business administration loan providers, credit unions and community banks.

(b) "Micro-business" means a business that is resident in STATE, independently owned and operated, and employs five or fewer people.

(c) In order for a lending organization to be eligible to receive program funds, it must have established sufficient expertise to analyze micro-businesses' applications for program loans, evaluate the creditworthiness micro-businesses and regularly monitor program loans. The lending organization shall review every program loan application in order to determine, among other things, the feasibility of the proposed use of the requested financing by the micro-business applicant, the likelihood of repayment and the potential that the loan will generate economic development and jobs within state. The corporation shall identify eligible lending organizations through one or more competitive statewide or local solicitations.

(d) Program loans to micro-businesses shall be targeted and marketed to minority-, women-owned enterprises and other micro-businesses that are having difficulty accessing traditional credit markets. Program loans to micro-businesses shall be used for the creation and retention of jobs, as defined by the corporation, including: (a) working capital; (b) the acquisition and/or improvement of real property; (c) the acquisition of machinery and equipment, property or improvement; or (d) the refinancing of debt obligations.

(e) There shall be two categories of loans to micro-businesses: a micro loan that shall have a principal amount that is less than twenty-five thousand dollars and a regular loan that shall have a principal amount not less than twenty-five thousand dollars. Prior to receiving program funds, the lending organization must certify to the corporation that such loan complies with this section and rules and regulations promulgated for the program and that the lending organization has performed its obligations pursuant to and is in compliance with this section, the program rules and regulations and all agreements entered into between the corporation and the lending organization.

(f) The program funds amount used by the lending organization to fund a program applicant loan shall not be more than [25] percent of the principal amount of such loan, and a higher cap may be set by DEPARTMENT.

(g) With respect to its program loans, the lending organization may charge application, commitment and loan guarantee fees pursuant to a schedule of fees adopted by the lending organization and approved by the corporation. Approved micro-loans for five thousand dollars or less shall have application fees waived.

(h) The Department is also hereby directed within 60 days to commence a study into the factors related to increasing the number of microfinance lenders in STATE. A report must be issued within one year of the effective date of this bill on the findings of the study and any recommendations the department may have.

(i) This act shall take effect immediately.