A new study of microloans issued by Community Development Financial Institutions (CDFIs) indicates that even as the majority of small business borrowers experienced improved financial outcomes, a significant minority struggled with debt management following the loans.
The research, conducted by the Urban Institute and examining over 13,000 businesses that received CDFI microloans between 2014 and 2018, revealed a generally positive trend in borrowers’ financial health five years after securing funding. The median borrower saw increases in their credit score, mortgage balance, and new business trade balance, alongside a decrease in credit card utilization – the proportion of available credit being used.
Though, the study similarly highlighted challenges for some entrepreneurs. Researchers observed a rise in the business owner delinquency rate and median credit card balance, suggesting that the added debt burden proved difficult for a portion of the borrowers. According to the Urban Institute, the typical loan amount was $11,500, and most borrowers operated businesses with only one full-time employee.
“In general, this analysis demonstrates that not all microbusinesses manage taking on additional capital the same way, and not all borrowers need the same kind of support,” the researchers stated in their report. The findings underscore the need for tailored assistance programs for microloan recipients, recognizing that a one-size-fits-all approach may not be effective.
The study comes as CDFIs continue to play a crucial role in providing access to capital for underserved entrepreneurs. A report from ABA Banking Journal, published earlier this month, noted the Urban Institute study’s findings, indicating that CDFI microloans generally lead to better business outcomes. The Urban Institute hosted an event on February 26, 2025, to discuss the credit trajectories of microbusiness loan borrowers, further emphasizing the importance of understanding the impact of these loans.
The Urban Institute’s research also noted that established microbusinesses, those with a longer operating history and existing employment, were more likely to be employers and had already demonstrated some financial stability before seeking a CDFI loan.
