Microenterprise Development

Of the 20 million Americans who operate microenterprises, 65 percent are women, 55 percent are minorities, and 59 percent are low-income. These small businesses supplement income from low-wage jobs or create jobs when workers become unemployed. For many low-income Americans, a microenterprise is the most effective way to support their families.

There is a large unmet demand for microenterprise technical assistance, training, and financing services in low-income communities. Community-based organizations in every state offer some type of microenterprise development program that targets non-traditional entrepreneurs, such as women of color, welfare recipients, immigrants, the disabled, or inner-city residents. But an estimated ten million of U.S. low-income microentrepreneurs do not have access to these programs.1

A large-scale study of microentrepreneurs found that 78 percent experienced a substantial rise in income, raising average household incomes from $10,400 to $18,500 in two years. More than 53 percent of low-income entrepreneurs gained enough income to move their families out of poverty, many nearly doubling their family income over five years.2

A recent study showed that about 50 percent of microenterprise operators achieved economic self-sufficiency after only 18 months.3 According to the U.S. Small Business Administration (SBA), businesses created by low-income entrepreneurs have high survival rates. Sixty-eight percent are still in operation after two years—slightly higher than the 66 percent survival rate for all small businesses.4

In microenterprise development programs, training and technical assistance are in high demand. On average, 89 percent of microenterprise program clients seek and receive training and technical assistance in areas such as business management and economic literacy. Currently, there are only two small sources of federal funding for training and technical assistance services to low-income entrepreneurs. The two SBA programs, the Microloan Program and Program for Investments in Microenterprise (PRIME), provide only about $40 million in funding. The Bush Administration has repeatedly targeted the Microloan Program, which is the larger of the two programs, for elimination. In FY 2006, the Microloan Program was cut by 15 percent and the PRIME program was cut by 60 percent. An SBA program for technical assistance was cut by ten percent.5

Twenty states currently allocate funding for microenterprise program operations, training and technical assistance. Other programs offer direct loans to microenterprises. Vermont’s Job Start Program, the oldest state microenterprise effort in the nation, administers a centralized loan pool through the state Economic Development Authority and uses state funds to support five local community action agencies that provide assistance and training to local entrepreneurs. Louisiana allocated $1 million in TANF funds for microenterprise programs and resource centers statewide. Nebraska’s longstanding microenterprise program created over 500 jobs in 2001 at a cost of only $729 per job. Oregon enacted legislation in 2001 that provides grants, technical assistance, and training to microentrepreneurs.

The Act directs the state economic development agency to create a grant program for nonprofit microenterprise development assistance programs. These programs will provide low-income microentrepreneurs with the support they need to succeed, including business planning, marketing, management, and financial management skills. All state funds must be matched at least dollar-for-dollar by other funding sources.