Once predominant in developing countries, microlending making strides in U.S.

Micro Lending Software

Traditional lenders continue to impose strict credit requirements in an effort to curb risk, and while it may be argued that the quality of loan portfolios managed by these lenders has improved, fewer small business owners have been able to gain access to valuable funding. As a result, a report says many entrepreneurs are turning to a form of lending popularly found in developing countries – microlending.

Observers have credited microlending with having a positive impact empowering business owners and the poor in impoverished parts of the world, but the smallest startups in major U.S. metros such as New York, Los Angeles, Houston and Miami now increasingly turn to local lending outfits for cash, according to the Associated Press.

A significant portion of these businesses are owned by minorities and women, said the report, and a microloan from a local nonprofit may provide the support and financial stability these business owners need to eventually qualify for traditional sources of funding. The AP cited data from the Aspen Institute that showed microlending increased 25 percent between 2008 and 2010.

Lenders in this field impose a wide variety of credit restrictions, some looser than others, and those interviewed by the AP said their desire was to encourage socially responsible lending supported by careful and thoughtful analysis on the part of sales representatives. At the same time, microlending is a difficult industry in which to become profitable, as evidenced by one lender profiled by the AP who has yet to turn a profit in six years of business.

As these lending firms continue to iron out the difficulties of working in a relatively new environment, it may be important for them to consider the use of microlending software that offers sophisticated credit risk management tools.

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