I think you will see much more "alternative financing" in the future. Microlenders Widen Their Client Base Amid Tight Credit Market, More Firms Look Beyond Banks for Financing By ANJALI CORDEIRO No loan is too small for small businesses these days. With many banks continuing to put a hold on lending, more small-business owners and would-be entrepreneurs are turning to microlenders, organizations that dole out smaller loans typically ranging from as little as $500 to $35,000. Microlenders, most of whom are nonprofits, have traditionally focused on helping small-business owners, particularly minorities and women, in lower-income communities as well as entrepreneurs in developing countries who need a few dollars to buy, say, a sewing machine. They tend to charge higher interest rates than banks because their borrowers are often first-time entrepreneurs or have weaker credit profiles. [d] NobleStrategy LLC NobleStrategy received a microloan for about $40,000 last year to help finance a mortgage for a new headquarters in Newark, N.J. They are more lenient in screening prospective clients, however, and more willing to tailor repayment periods to the specific needs of a business. And it is that flexibility that is attracting more small-business borrowers these days. "We lent more dollars last year than we ever have in our 15-year history," says Kathy Ricci, executive director of the Utah Microenterprise Loan Fund, a community-development organization in Salt Lake City that makes microloans. "We are seeing more people that perhaps a year ago could have gotten a bank loan, but because of the tightening of the credit market" now can't. Last year, the nonprofit lent out $1.2 million to small businesses, double the previous year, because of higher demand and an expansion of the lending limits in some areas to $25,000 from $10,000. So far this year, it has lent out $300,000. Its average loan size was $20,728 in 2008. Mark Quinn, executive director of the Greater Newark Business Development Consortium, which provides financing to small businesses, says his New Jersey organization is now getting calls from small companies that have been in business for 10 or 20 years. One new borrower is Terry Bressler, chief executive of Skyline Trimmings LLC of Newark, N.J. He borrowed $22,000 from the Newark consortium last summer to help create a Web site and upgrade machinery at his eight-year-old company, which provides fabrics for window blinds. Mr. Bressler, 65 years old, says he has received small-business loans from banks in the past. But last year, two banks turned him down for a $50,000 loan. "They said they weren't giving out any money," he says. So he turned to the consortium, which charged him prime rate plus four percentage points -- putting the interest rate on his loan at about 7.25% as of early March. "At least [the microloan] gave me a small infusion last year," says Mr. Bressler. He declined to disclose any financials, but says 2008 was the first year his company posted a loss. Small Business How-To Guide Some established businesses are using microloans to supplement financing from banks that are lending -- but are doling out smaller amounts than previously. William Parrish Jr., president of construction-management company NobleStrategy LLC, last year received a microloan for about $40,000 from the Newark consortium to help finance a mortgage for a new headquarters in Newark, N.J. That accounted for about 10% of Mr. Parrish's financing needs; the rest came from a bank loan. "Sometimes, they are going to do things the traditional banks wouldn't do," says Mr. Parrish, 42, referring to the microlenders. The consortium's Mr. Quinn says "the ways we evaluate the collateral" for a loan aren't as stringent as banks. In some cases, his organization even accepts personal items, such as a car, as collateral. Another group looking more to microlenders: recently laid-off workers who are now trying to start their own businesses. "Unemployment is having an impact" on the demand for microcredit, says Sara Ignas, a spokeswoman for the Association for Enterprise Opportunity, an advocacy group for microlenders. http://online.wsj.com/article/SB123844971755171099.html?mod=article-outset-box#printMode