A few weeks back the Wall Street Journal ran an article about how microloans–a short-term loan usually made to provide working capital and the other things necesary to get a new business underway–are growing throughout Europe.
I wasn’t surprised. Unemployment in Europe remains stubbornly high and starting your own business is one solid way of obtaining a job.
But then I got to wondering whether microloans could be the answer to spurring more entrepreneurship here.
Some quick arithmetic shows they could be.
You can get microloans from various sources–I am never comfortable making recommendations, so just Google Google “microloans” and take a look at the names that pop up if you are looking for places to apply–but let’s take a look at how a U.S. Small Business Administration microloan works by way of example.
The SBA says its microloan program “provides small (up to $35,000) short-term loans for working capital or the purchase of inventory, supplies, furniture, fixtures, machinery and/or equipment.”
Now, that $35,000 figure doesn’t seem like very much. But consider this. It costs just $109,000 on average to get a business up and running.
One of the reasons that $109,00 number is surprisingly small is because of the way the best entrepreneurs go about building their business.
They don’t swing for the fences, as the accepted myth would have you believe. They take a series of small steps toward their goals, learning as they go. Because of this approach, they only need enough funds to get to the next step.
So, that $109,000 figure makes sense and a $35,000 loan would represent slightly less than a third of the money required on average.
The point? If you think a lack of funding is holding you back from starting your own business, you may want to think again.
And if you believe that you are going have problems covering the shortfall left once you have that loan, you again might want to rethink your position. And you also might want to look at The $1,000 Challenge by Brian J. O’Connor ($16.00. Portfolio/Penguin.)
There are two things that are appealing about the book written by O’Connor, who writes a personal finance column for The Detroit News.
1. He is genuinely funny.
2. The entire focus of his book is on how you can reduce your monthly expenses–his goal when he applied his own lessons to his own household budget was to save an additional $1,000 a month, hence the title of the book.
The suggestions are presented simply and make sense. For example, “to save the most cash as quickly as possible, focus on your largest recurring expenses and examine every alternative, from the simplest to the most radically ruthless.”
Between whatever savings you have now, the extra money you can save by cutting expenses and loans you should be able to obtain, you may find that you have all the money you need to get underway.
Paul B. Brown is the co-author of Just Start published by Harvard Business Review Press.
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