Herzlich writes the Small Business column in Newsday.
For many small businesses even a small infusion of capital can mean the difference between staying in business and shutting their doors.
Getting larger loans can often be difficult for start-ups or small entrepreneurs, particularly those who don't qualify for traditional lending.
But for those seeking smaller amounts, microloans can often provide the necessary capital to stay afloat, experts say.
"Microloans give entrepreneurs the financing they need to start, survive or grow their business," said Roz Goldmacher, president of the Long Island Development Corp. in Westbury, an economic-development organization providing small business loans, seminars and pro-bono technical assistance.
Microloans are generally loans less than $50,000, said Goldmacher, whose organization offers microloans under $10,000 typically to applicants who wouldn't qualify for traditional lending.
OPTIONS TO LENDERS: Entrepreneurs seeking smaller amounts of capital can try a traditional lending institution, but if they're having difficulty accessing capital because of stricter lending requirements, there are various alternative microlending options on the Island, Goldmacher said.
For instance, the Community Development Corp. of Long Island in Centereach offers a microloan program of up to $50,000. While they've funded start-ups, they typically like to see a business in existence for at least nine months, said John Bozek, vice president of small business lending for the CDC, which offers a Small Business Administration microloan that's partially funded by the SBA and is for applicants who can't get a traditional loan.
This way, the CDC has some revenue and cash flow to assess the applicant's ability to repay the loan, said Bozek, adding microloan inquiries are up at least 10 percent from a year ago.
"I think people are seeing it as a tool for economic development more now than they did in the past," he said.
Thomas Murray, owner of AAAA Auto Sound in St. James, which sells automotive sound systems and equipment, said it was a "lifesaver." Being in business less than two years made it tough getting a conventional bank loan, he said. But he was recently able to secure a $25,000 SBA microloan from the CDC, which he's using to buy inventory and advertising.
The microloan's interest rate is about 8 percent, which is higher than he'd likely pay at a bank, Murray said.
HIGHER INTEREST: These loans could carry higher annual interest rates partly because the alternative lender is incurring more risk, said Adam Hoeksema, author of the e-book "How To Secure a Microloan for Your Small Business" and microloan manager at the Flagship Enterprise Center, an incubator in Anderson, Ind., that has an SBA microloan program.
The trade-off is access to capital. For Ligia Ramirez, co-owner of Bellmore-based Coeus Infusions, a tea importer, getting traditional financing would have been difficult, given that the company only had its first sales in 2011, she said. So instead of approaching banks, she snagged a $25,000 non-SBA microloan from La Fuerza Unida Community Development Corp., a lending organization in East Norwich that targets minority and women-owned businesses in distressed communities.
It will help purchase inventory and "build a credit history for my company," she said.
Applicants like Ramirez still have to go through an underwriting process, said Giovana Ramirez, La Fuerza Unida's director. Having a solid business plan is key, Goldmacher said. Also, have financial statements in order, Hoeksema said.
"A lot of early-stage small businesses don't do their bookkeeping," he said. "You need to do it right from the start."
SBA microloans by fiscal year for the New York District (includes LI):
798 loans for $4.27M
1,193 loans for $4.67M
2012 (through Sept. 14)
1,015 loans for $3.79M
Source: Small Business Administration