Small Business Micro-lending at 0% in the U.S. Takes Off

Want to start your own small business to advance the social good, but don’t have the necessary startup cash in hand? Or perhaps you already own a small business of your own that is doing great things, but need some extra money to achieve your goals.

Now, thanks to international non-profit and micro-lending pioneer Kiva, anyone from your next-door neighbor to a stranger you have yet to meet living thousands of miles away may be not only able to lend you what you need, but willing—and at no interest.

micro-loan-introWhile the latest reports show small business credit is loosening up, the smallest of small businesses are still struggling. “This is a very big deal,” said former President Bill Clinton when announcing Zip’s pilot project in his hometown of Little Rock, Ark., this month. “We have gotten ourselves in a situation now where the only people who can get real money are the people who don’t need to borrow it.”

Kiva hopes to change that scenario by providing a platform that connects willing lenders with vetted small-business borrowers to expand both their financial opportunities and access to necessary funding at little to no cost. But who would want to lend money to a small business owner and never see any interest out of their investment?

Turns out, more people than you’d think.

In fact, as of the end of August 2012, Kiva’s Zip pilot program already had disbursed loans to some 250 borrowers via about 1,000 lenders whose only reward more or less was in seeing other entrepreneurs succeed and having the satisfaction of a job well done. It’s all in support of Kiva’s mission “to connect people through lending to alleviate poverty, empowering individuals to create opportunity for themselves and others through safe, affordable access to capital.”

While Kiva Zip is not a risk-free lending platform, initial repayment rates are encouraging. In fact, more than 87% of U.S.-based borrowers have repaid their loans thus far, making them a good gamble and strong candidates for obtaining yet more funding in the future. Additionally, borrowers in good standing can earn the right to become trustees in Kiva’s loan process.

Trustees are the individuals and/or organizations in the Zip lending model who vet and then vouch for potential borrowers. While trustees do have an important hand in the overall process, they do not handle the loans directly and receive no financial compensation for their efforts.

Rather, borrowers and trustees are publicly recognized and rewarded for their contributions to the Zip community, as well as on-time loan repayment, through a merit-based system that awards badges and points in accordance with performance. Badges earned result in such benefits as the ability to raise money more quickly, the potential to borrow more money at a later date and—in the case of trustees specifically—the ability to endorse more borrowers in the future.

For Kiva Zip loans made in the U.S., the entire amount goes directly to the borrower with repayment expectations laid out in advance. Should the borrower default, there are repercussions, which may include credit score reporting, lack of access to future Kiva loans, or extensive interviews to assess problems and avoid them in the future.

Criteria used to assess Zip borrower eligibility are as follows:

• Social and economic need

• A sound business plan

• Little to no debt

• No bankruptcy or foreclosure proceedings, current or pending

As for trustees, they need to feel comfortable endorsing a borrower’s character and assessing their level of financial responsibility. That same level of due diligence is then maintained over the loan’s term as trustees provide their borrowers with ongoing support and help them manage their personal finances to ensure repayment.

To learn more about Kiva Zip, click here now!

What do you think about this relatively new approach to small-business lending? What lending and borrowing options have you found most helpful in starting and growing your small business? Do you think small business lending is finally loosening up a bit? Why or why not?