…and the Difference They Make
The Micro Business Loan program is one of eight programs in Momentum’s Business Development department. People come to the department to discover their entrepreneurial potential, and to develop the techniques of running a successful business.
Some participants who go through the training are also eligible for the Micro Business Loan program.
With all the banks in Calgary, why does Momentum need to offer loans at all? The answer is simply this: Micro Business Loans are fundamentally different from the loans offered through traditional banking.
1. Difference in risk tolerance
Traditional banking must favour low-risk business loans that allow for business growth. Rather than making a profit, the purpose of Momentum’s micro loans is to help recipients move out of poverty. We therefore lend money to people living on low incomes who cannot access credit elsewhere.
Clearly this requires a greater risk tolerance than traditional loans. Momentum very consciously balances the risk with the training, ongoing support and guidance that are a part of the loan package.
The ultimate intention is to help entrepreneurs become financially independent owners of successful businesses, able to engage in mainstream banking, create jobs and become active contributors to the economy.
2. Difference in cost
Traditional banking tends to give larger loans because they are less costly and more efficient to administer. Momentum participants receive micro loans that do not exceed $7,500—or $10,000 for entrepreneurs with disabilities—and Momentum staff invest a lot of time both in the loan application process and in supporting recipients.
In 2015, the department had 75 active loans with a combined value of $227,830. The cost of managing so many small, high-touch loans is only possible because of the generosity and understanding of Momentum’s financial partners, like United Way.
Our donors know that micro loans are the bridge between the training and support Momentum offers, and the impressive business results the Business Development entrepreneurs create.
3. Difference in assets
In traditional banking, people who take out loans must have existing financial assets that are often used as collateral. Micro Business Loan recipients do not have such assets. In fact, that’s one of the reasons many of them have been turned down by traditional financial institutions.
Momentum’s micro loans are largely character—rather than asset-based. That means it is essential for Momentum staff to know loan applicants well. Applicants may face multiple barriers, have a less than perfect credit history and limited access to resources. But the assets that matter at Momentum are commitment, self-discipline, determination, and entrepreneurial passion, all backed up by a reasonable business plan.
At Momentum, entrepreneurs get credit in order to build assets, rather than getting credit because they already have assets.
4. Difference in experience
Traditional business loans are given to successful business people. Those who make it through the rigorous application process for a Momentum micro loan don’t necessarily have proven business savvy, or even business experience.
Instead, Momentum ensures recipients develop business experience as part of the process of being approved for the loan. The six-month program of business training is thorough and rigorous. It’s followed by a further nine months of one-on-one coaching, and access to ongoing mentoring and peer networking. And it works.
The difference micro loans make . . .
Thus Micro Business Loans are intentionally different from those that traditional financial institutions are able to offer.
To be a successful lender, Momentum has a solid understanding of technical financial tools, plus the willingness to build meaningful, long-lasting, supportive relationships with loan recipients.
Momentum’s Micro Business Loan program does both expertly.
“Momentum does not patronize loan recipients, and recipients do not take advantage of Momentum. We meet as equals to fight poverty, and work together over the lifetime of the loan and beyond.” – Sergio Ribera, Momentum Micro Loans Facilitator
And in 2015, the program surpassed its goals.
- It closed deals with 38 new micro loan recipients—the goal was 37.
- It had 28 loans repaid in full—the goal was 20.
- Active loan recipients created 115 jobs—the goal was 90.
And all the while, the program had an impressive 99 percent repayment rate.