Though the loans are small, the peer-review aspect provides borrowers with benefits that go well beyond cash, advocates says. Larger small-business owners can tap into such groups as the Council of Growing Companies in McLean, Va., or The Executive Committee, known as TEC, in San Diego, Calif., for mentoring and aid. Both groups aim to mentor chief executives, including many small-business owners. The Council of Growing Companies also has size requirements. In addition, the groups have costly dues that tiny businesses can't afford.
Lenders can benefit too.
The advocates of peer lending, as the practice is called, say the groups help lenders lower both loan-default rates and operating costs. But critics say requiring participation in peer groups deters many people who sorely need microloans from seeking help. Many Americans, especially those with the entrepreneurial spirit, are simply too individualistic or too private to work cooperatively with peers. Dr. Servon, who has a doctorate in urban planning, also notes that ground rules for peer groups prevent borrowing from rising very fast. The groups set loan limits and specific time periods for entrepreneurs to work up to larger loans.