Small entrepreneurs typically turn to banks to finance their business ideas, but in a handful of college towns, they have a new option: Just ask the students.
In the last four years, about a dozen student groups have begun offering loans to local residents who want to start businesses but are unlikely to qualify for traditional bank loans.
“We’re making loans to the people who need them most. In between classes,” is the tag line of the Campus Microfinance Alliance, a national network whose members include Bentley and St. Cloud State Universities. Yale University’s group, the Elmseed Enterprise Fund, is believed to have been the first; Brown and Rutgers Universities and Grinnell College have since developed particularly robust programs. The clubs, often established as nonprofits, have helped hundreds of university neighbors around the country start barbershops, bakeries, and hot-dog stands with modest loans, usually less than $5,000.
Rohan Mathew and Joe Shure, working for the campus newspaper at Rutgers in 2008, noticed how difficult the recession had made life in New Brunswick, N.J. Many low-income residents, they found, were operating side businesses out of their homes for extra cash. They wanted to pursue that work full time but couldn’t find enough start-up capital.
“We said, ‘That’s crazy. These are hard-working people,’” Mr. Mathew remembers. “We really thought as college students we could make an impact in someone’s small business.”
So the friends—double majors in math and physics and history and political science, respectively—sat down in the dorm and worked out a plan to offer loans and training to low-income entrepreneurs in the local area. Despite the students’ lack of formal education in business, they managed to win a handful of local grants, including one for $25,000 in a university-sponsored business-plan competition. Those funds allowed them to open a nonprofit, the Intersect Fund, which, after their graduation, is still operated almost entirely by student volunteers.
The project initially met a lot of skepticism, Mr. Mathew recalls. “People said, ‘You’re college students. You can’t do this. No one is going to trust you.’” But they have gone on to help Bill Rawles make his landscaping and property-maintenance venture a full-time, year-round business, and Gretchen Campbell, who was sewing custom pillows and bags, register her company. Since 2008, the fund has provided more than 100 small loans, more than any other microlender in the state.
Statistics for Art Majors
Students at other colleges have shown similar determination, says Vanessa L. Carter, director of the national alliance, which helps start and expand campus-based programs.
“There are so many students eager to get involved and make a difference,” she says. In the last two years, representatives from about 50 colleges have contacted the alliance with interest in starting new chapters. Neighborhoods surrounding many campuses are in poor condition, she points out; the high unemployment rate, she thinks, has prompted more students to act.
The Rutgers group, as others, trains its student volunteers. Some then teach an eight-week course, Entrepreneur University, on marketing, bookkeeping, and writing a business plan. Others review loan applications and discuss finances with clients. The personal relationship between students and borrowers is part of the reason the group has been successful, Mr. Mathew says: Clients know the names and faces they are disappointing if they fail to repay their loans. Despite a 15-percent interest rate, no one has defaulted on a payment yet. Yale has a similar track record, with a repayment rate of 91 percent.
Few volunteers who run microloan programs are studying business. A chance to develop teaching and documentary-filmmaking skills drew Alexis Seccombe, a graduate student in comparative literature at the University of North Carolina at Chapel Hill, to the campus’s Community Empowerment Fund. Among the 70 student volunteers there, majors are “remarkably all over the place,” she says.
An art student may take promotional photos, while a statistics major conducts surveys to analyze borrowers’ business growth. The human connection is what tends to keep volunteers engaged, Mr. Mathew says.
Gaining practical experience also appealed to Nayantara Choudhary, a global-studies and business-management major at Rutgers. “I had been learning all these things in my classes, and I could finally apply it in real life,” she says. She hopes to go on to work in the field of nonprofit microenterprise, a decision largely influenced by her two years at the Intersect Fund.
This summer, through an internship called Lend for America, the national alliance will teach students how to start microlending and training programs in their communities. Brown, Rutgers, and UNC will play host to the interns.
“People want to have careers with a conscience,” says Mr. Mathew, who turned down a lucrative Wall Street job in 2009 to stay on as executive director of the nonprofit he started. “What I see right now is a shift in interest.”
