Forbes.com, Associated Press | Gary Schulte | July 28, 2011

LINCOLN, Neb. -- Business development programs that offer micro-loans to small Nebraska companies say they're lending more than ever since the recession and have fielded an unprecedented number of requests from entrepreneurs who can't get loans from traditional banks.

Program administrators say the micro-loans - small-dollar amounts that can be used to launch businesses that are too little or lack the collateral to qualify for a more traditional bank loan - have grown in popularity because of the global economic downturn. The number of loans offered by four established micro-lenders surged with the recession and dropped only slightly in the last fiscal year, according to the U.S. Small Business Administration.

The nonprofit Rural Enterprise Assistance Project has already loaned more than $1 million to small businesses in their fiscal year, which ends on Aug. 31, said program director Jeff Reynolds. In a typical year, he said the micro-loan program - one of Nebraska's largest - lends $600,000 to $700,000.

"We've seen a lot of borrowers we haven't seen in the past," Reynolds said. "These past three or four years have been unprecedented. I think a lot of it is the economy, and banks being more cautious with small businesses."

Reynolds said his program has maintained a default rate below 4 percent, despite the recession.

The number of loans and dollar totals in Nebraska surged with the recession and have held steady as the state's economy inches back. In fiscal 2008, four Nebraska micro-lending groups issued 60 loans totaling $635,300, according to the U.S. Small Business Administration. The same four lenders issued 81 loans the next fiscal year at a combined $1.1 million. The totals in fiscal 2010 declined to 78 loans and $1.04 million.

Alex McKiernan and his wife, Chloe Diegel, used a $5,000 loan to build their credit history for a farm that started in August 2009. The couple sells vegetables through a community-supported agriculture program that gives members more food for their dollar in good years, but spreads the risk out when times are rough. Their business, Robinette Farms, also serves farmers markets and local restaurants.

McKiernan said his farm operation near Martell, south of Lincoln, was too small to qualify for a traditional bank loan. The micro-loan required collateral and had a 9 percent interest rate, but helped cover basic start-up expenses.

"It's been eye-opening to me to see how much money it takes to start a business," McKiernan said. "It adds up."

In Beatrice, Chuck McKay tapped a REAP loan to reopen a shuttered auto body shop. McKay would not disclose how much he borrowed, but said the small loan has allowed him to keep the fledgling business afloat while he builds a customer base.

"I think it would have been really hard" without the loan, McKay said. "I don't want to say I couldn't have done it, but (the program) definitely fills a void."

In Lincoln, former Cornhusker Bank CEO Alice Dittman announced Thursday that she is giving $1 million over three years to establish a low-interest micro-lending program aimed at under-served entrepreneurs. The Alice's Integrity Loan Program will offer business training and loans as large as $5,000 to qualified women and minority entrepreneurs, to be repaid in 36 months.

Rick Wallace, who heads the Lincoln-based Community Development Resources business aid program, said such micro-loans are designed to help new businesses build a credit record or repair a damaged financial reputation.

"With the state of the economy, and the way things are going right now, we're definitely seeing more of these start-up businesses," he said.

GROW Nebraska, a nonprofit that trains entrepreneurs in marketing, has offered more small business loans in the last two years than in years prior, said CEO Janell Anderson Ehrke. The Holbrook-based group offers five-year loans no larger than $10,000, and Quick Grow Loans of up to $1,000.

Ehrke said she recently accepted a riding lawnmower as collateral for a fledgling upholstery business, and has had to console a panicked business owner whose meat company was struggling.

"We've had more activity in the last few years, but it could be that we're just doing a better job promoting it," she said. "Most people think the only place they can get money is from family, friends or a bank."

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