Microenterprise In North CarolinaPresented byLiliana ParkerMarketing Manager,Business Consultant

www.ncceed.org - 910-323-3377

What is a small business?

SBA definition:

1. A small business has up to 500 employees for manufacturing businesses,

2. Less than $7 million in annual receipts for most non-manufacturing businesses.

3. The smallest businesses, often located in private homes, are called microbusinesses.

What is a microenterprise?

1. A result of the lack of formal sector jobs available.

2. Can be valuable to those who cannot efficiently participate in typically rigid work environments.

3. Is generally owned by a low-to-moderate income person.

4. Is often owned by minorities, recent immigrants, women and the disabled.

5. For those with a reduced ability to access conventional commercial banking sector, traditional credit and other financial services.

6. Relies on personal savings or micro-loans for financing.

Advantages of microenterprises

1. Can be started at a very low cost and on a part-time basis.

2. Are well suited to Internet marketing because they often serve specialized niches.

3. Can be more intimate with their customers and clients which results in greater accountability and maturity.

4. Give independence. However, entrepreneurs have to work very long hours.

Programs and services for microenterprises1. Microenterprise programs provide services in 47 percent of

rural markets and 50 percent of urban markets

2. The United States Social Security Administration has the Plan for Achieving Self Support, to encourage disabled persons who are eligible for Supplemental Security Income, (SSI) to set aside moneys for training, schooling and funding microenterprise as a work goal.

3. in 2008, about 829 organizations were providing direct services, in one-on-one technical assistance, group-based training, specialized services such as coaching and mentoring, financial literacy and marketing services.

Programs and services for the microenterprises4. Community Development Financial Institutions (CDFI's),

particularly community development loan funds, offer loan capital for microenterprises in the United States.

5. Several organizations also provide help for the small business sector such as the Internal Revenue Service's Small Business and Self-Employed One-Stop Resource.

Programs and services statistics

57% of the individuals served are women

53% are people of color or disadvantaged racial or ethnic groups

57%  have household incomes at or below 80 percent of the HUD median

43% are below 150 percent of the Health and Human Services poverty

94% provided microloans up to $35,000

9% offered credit-builder loans

5% offered microgrants

2% offered microequity

11% had peer or group-based loans

1% program reported peer loans

1. Loan demand has been much lower than expected.

2. Struggle to reconcile the desire for capital expressed by low-income entrepreneurs with the difficulties in lending to these low-wealth, often inexperienced and often risk-averse business owners.

3. Are not receiving the financing they need in order to launch and operate their businesses.

4. Their long-term sustainability is linked to their ability to cover at least a portion of their operating costs through interest and fee income.

Some concerns about microentrepreneurs

Some concerns about microentrepreneurs

5. Elect not to borrow — choosing only to receive technical assistance or training, or to participate in a peer group without borrowing.

6. Have risk-aversion. Given their precarious personal financial situations, they often are concerned about taking on debt.

7. Find that the underwriting process is delayed because of their poor or no credit history.

8. Microentrepreneurs perceive credit cards as an alternative to microenterprise lenders.

1. The programs which are moving toward self-financing are those that have achieved a significant level of lending activity.

2. The slower growth of loan programs is due to the loan preparation and underwriting process that takes far longer than originally envisioned.

3. Loan programs struggled to increase loan volume while maintaining credit quality. Most lenders have experienced periods of high delinquency and/or staff turnover.

4. Peer-lending programs have faced challenges in forming and maintaining groups, because microentrepreneurs can only borrow through the group.

5. Microenterprise lenders have long recognized the lack of equity among their borrowers and have used nontraditional collateral to secure loans.

Some concerns about the loan programs

Some alternatives

1. To develop more financing products and delivery systems to address the issues of risk aversion and poor credit histories.

2. An alternative approach to Grameen-style lending is stepped lending  in which a borrower begins with a very small loan, repays it, and qualifies for successive loans at higher values.

3. To find types of lending strategies that work well for microentrepreneurs.

Some challenges

1. Microcredit programs have been criticized for parlaying their microlending into profit-making operations, charging high interest rates widely regarded as usurious.

2. The use of equity instruments potentially reinforces a “grant mentality” among people who may have come to rely on welfare.

3. Microenterprise lenders can’t effectively serve borrowers with poor credit histories.

4. Strengthening loan volume is critical to strengthening the sustainability of microenterprise financing programs.

Solutions

1. A “Jump Start” peer loan that will provide up to $500 to finance predevelopment costs of its training program graduates. This product will have reduced underwriting requirements for clients who have some access to sources of repayment beyond their businesses.

2.  An “SBA Express” loan that will provide small amounts of capital with rapid turnaround to SBA Microloan applicants who need small amounts of financing to meet a short-term need (e.g., to fulfill a contract).

3. Expansion of the level of microlending with the creation of a range of products and modes of outreach to attract larger numbers of entrepreneurs.

Solutions

4. Construction of underwriting approaches and criteria that can minimize the high costs of making microenterprise loans.

5. A statewide peer lending program. The “Town” Projects, which offers lines of credit to municipalities and other local development organizations that have business counseling and/or underwriting capacity but lack flexible capital to make microloans.

6.  The “Specialty Trades” project, which offers lines of credit to trade associations which in turn make microloans to members. The project provides equity to businesses facing cash-flow issues in their early years.

Solutions

7. “Business Investment Trust”: 40 percent of the monthly loan payment is escrowed in the trust account. After 12 consecutive months of on-time repayment, the client can access the funds to invest in inventory, equipment, working capital or leasehold/property improvements.

8.  Strengthen networks of leaders:  Leaders who have come together to form networks that provide a base for peer learning and the creation of joint tools have accelerated their growth and development. 

9. Secure growth capital to support investments in organizational capacity and long-term financial health that are required if organizations are to grow in a sustainable manner.

Solutions

10.To build scale and capacity with small amounts of funding with the creation of funding structures to provide adequate capital for these innovations.

11.A successful credit-scoring model will attract traditional financial institutions to this market such as:a. The creation of an informal credit score card by

affiliates.b. Creation of a credit scoring model for microenterprise

loans,c. Blend conditional grants with flexible term loans.

12.Create micro-equity products

13..A continuum of financing products to meet the capital needs of low-income entrepreneurs and to increase scale and sustainability.

Solutions1. Connecting entrepreneurship, economic development, job

creation and asset development.

2. A systems approach that connects service providers and communities to create broader, regional networks.

3. Improve understanding of the market

4. Differentiate and broaden products and services

5. Restructure industry for greater scale and depth

6. Use technology to transform operations

7. Measure and improve performance throughout the industry

SolutionsDevelop and support policies that directly benefit microentrepreneurs

Develop new strategies to stabilize and sustain programs

Repositioning the microenterprise field

Entrepreneurs need access to affordable health insurance.

Low-income entrepreneurs need a financial cushion in the form of emergency savings accounts.

Low-income entrepreneurs need ongoing technical assistance and specialized consulting to help them implement and grow their businesses.

Microenterprise programs should include an effective assessment process to help keep business failures to a minimum.

Contracting opportunities

1. In the NCDOT database, there are only slightly more than 200 registered Hispanic-Latino vendors/contractors out of a total 3,500 minority and woman contractors.

2. The NCDOT created a Mentor-Protégé Program which paired small minority- and woman-owned contractors with successful contractors to develop specific identified areas of the smaller firm’s business.

Contracting opportunities

3. There are programs that have millions of dollars of state and federal contracts managed and advertised for bid for qualifying contractors through NCDOT. 

4. These are also county and municipal contracts with associated training opportunities that are funded through federal projects such as:

a. FORE – Fully Operated Rental Equipment;

b. SBE – Small Business Enterprise;

c. Subcontractor and

d. POC Prime – Purchase Order Contract Prime.

Recommendations for government contracting

1. Get certified / approved / prequalified: The NCDOT Contractual Services Unit prequalify contractors to do business with NCDOT and certify contractors as Federal Disadvantaged, State Minority or Woman Owned and State Small Business Enterprises.  The Dept. of Administration Office of Historically Underutilized Businesses (HUB) certifies contractors for all state government work not related to NCDOT. 

2. Get trained: The NCDOT Business Opportunity and Work Force Development Unit train contractors on how to bid, how to work on state and federal contracts, office management, getting their financials & banking issues straight, bonding, insurance, etc. 

Recommendations for government contracting

3. Get on-the-job training for workforce development: Specifically addresses training minorities and women in non- traditional construction jobs.

4. Become familiar with the Web: There are a multitude of opportunities available on the Web.  Contracts and/or projects available for bid are listed on these websites.

Recommendations for government contracting

5. Start small: Specifically in NCDOT there are several ways a contractor can get started small and build experience to step their way up to larger projects.

6. Advertise / Outreach / Partner: A significant number of existing smaller firms are successful because they reach out to larger contractors making them aware that the smaller firm is available to do work. 

Government contracting concerns

1. The NCDOT site is currently a one-stop shop. Language barrier issues need to be overcome. The predominate language on the worksite is English.

2. Currently there are regional outreach sessions held across the state.  There could be an expanded, specifically-targeted program created for outreach, but this may represent additional costs.

3. Personal and professional information about the individual is needed, in order to become certified and/or prequalified.

Resources for Microentrepreneurs

www.commerce.gov

www.nccommerce.com

www.sba.gov

http://www.secretary.state.nc.us/corporations/