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Microloans Buoy Cash-Strapped Entrepreneurs

Who qualifies? Accion will consider any entrepreneur with a credit score above 575, who doesn't have past-due accounts in excess of $3,000 and whose business doesn't involve real estate investing, multilevel marketing, adult entertainment or firearms. They must also rent their space or hold a fixed-rate mortgage and own fewer than three properties.

How does one find a microlender? The Association for Enterprise Opportunity, which focuses on the microenterprise industry, keeps a list of members on its Web site. Most of these are regional lenders. Accion is a good place to start because it provides loans nationwide.

How big is a microloan? Accion offers business loans of up to $50,000 and start-up loans of up to $30,000, with "start-up" defined as any company less than a year old. This differs from many banks, which consider a start-up to be any company younger than three years. The average loan is about $6,600.

What are the interest rates? Interest rates for microloans typically range from 8% to 15%, Kozien says. While these are higher than those of many bank loans, they're lower than rates charged when you borrow from credit cards or approach loan sharks.

Where does the money come from? Microloans often come from peer-to-peer funding, in which strangers pool resources online to collect money for the entrepreneur they choose to fund from a photo gallery of applicants. On Kiva.com, which partners with Accion, featured entrepreneurs include a Palestinian driving instructor who needs money for training manuals, a Ugandan beauty salon that needs hair dryers, and a taxi driver in New York who needs to fix his car.

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