Guidelines for Business Loans

Life Asset Inc. is a nonprofit organization in Washington D.C. whose primary purpose is to provide financial services to the unbanked and underbanked. Life Asset Inc. has established a loan fund, the Life Asset Loan Fund (LALF), providing small loans to entrepreneurs who want to start or grow a small business but are having difficulties getting loans from traditional banks.LALF is an alternative to moneylenders, payday institutions, and pawnshops that usually loan money at excessively high interest rates, making it extremely difficult for entrepreneurs to turn their ideas into profitable businesses. (Life Asset is also organizing the proposed “Life Asset Credit Union”).The Lending ModelLALF is based on the Grameen lending model developed over 30 years ago by Grameen Bank in Bangladesh.

LALF lending model as with Grameen is centered around a peer group. The peer group model requires prospective borrowers to form or join a group of 5 other entrepreneurs, each wanting to start or expand his/her business. Groups are then organized into Centers. A Center is composed of up to 8 Groups. Each group meets weekly with a Center Manager to repay loans and make savings deposits. Through the Group and Center, borrowers share with each other solutions to business challenges, identify opportunities for sales growth, and provide support and encouragement both personally and professionally.

Lending Criteria and Term of Loans

LALF loans are distributed to individuals who have promising business ideas but have difficulty accessing credit at reasonable rates.

A potential borrower does not need to have a:

Current bank account
Credit history
Collateral
Guarantors

A potential borrower does need to:

Have a desire to pursue a business idea
Live below the poverty line
Use the loan for an income generating activity (to start or grow a business)

Create or join a 5-member group who want to start or expand their own businesses and who commit to meeting weekly. (Close relatives such as mother, sister, or in-laws are not allowed to be in the same group, but may join a different group).

Amounts and terms of the loan:

A basic loan has a term of six months or one year (can be individualized).The initial loan amount is between $500 and $1,500. Additional and larger loans can be approved based on timely loan repayment by the borrower and the standing of the group.

The interest rate is 6% on a declining basis (same interest rate as Grameen Bank in NY. This is a fraction of what check cashers, pay day lenders and other predatory lenders are charging. There are no other fees. No collateral is required. Each week the borrower repays a portion of the principal and interest, and also makes a deposit into a savings account.

Savings

Like the Grameen model, LALF incorporates a savings requirement into all loan relationships so that borrowers build financial resources for the future. All borrowers (who don’t have a bank account) open personal savings accounts with a local bank and must contribute at least $2 per week to that savings account. Once Life Asset Credit Union is chartered, borrowers will have the opportunity to establish saving accounts that are interest bearing, without fees, and without minimum balance. As the credit union grows in members and assets it will lend to more low-income entrepreneurs.

Training

All borrowers go through an initial 6-week business development training with their group of five prior to receiving their first micro-loan. The purposes are to develop business plans and to ensure that borrowers understand the loan process as well as the terms of the loan.

Borrowers meet weekly to repay their loan and continue their business training. In addition to loan repayments and savings deposits, weekly meetings are spent discussing business issues brought up by the borrowers. The LALF Center Managers act as facilitators for the groups and often manage group discussions. The Center Managers have access to local resources for questions outside LALF scope of work, such as: licensing for small businesses, filing taxes, welfare, and education issues.

Application

The first step for interested applicants is to fill out Business Loan Preliminary Application (see attached).