Ann Arbor economic development officials are hoping that microloans can be an economic jump starter for entrepreneurs thirsting for cash.

Local officials have pooled $1.5 million in funds for comparably tiny business loans designed to boost startup companies with few traditional financing routes.

Skip Simms, Ann Arbor SPARK’s business acceleration managing director, said microloans fill a financial need during a funding crisis that threatens to stall creativity in an era when Michigan needs it most.

Traditional small-scale financing routes for entrepreneurs in extremely early stages have disappeared. Historically some entrepreneurs would borrow money from family members, dip into savings or take equity out of their homes.

“Today those options are not there or certainly not as readily available or easily available. That’s created in this past year a new kind of a gap for small amounts of money,” Simms said. “These are clearly companies that are still way beyond being bankable, so that wasn’t an option and still isn’t.”

That’s why SPARK, Washtenaw County, the Michigan Economic Development Corp. and the Ann Arbor-based Center for Empowerment & Economic Development are making microloans a priority.

Microloans usually range in size from about $10,000 to about $50,000. They can be used for simple projects like establishing a Web site, conducting market research or developing a business plan.

The Ann Arbor region now has four microloan programs:

-The SPARK-managed Michigan Pre-Seed Capital Fund, which traditionally focuses on small-scale venture capital investments, is offering $1 million in microloans to tech companies statewide.

-The Ann Arbor-Ypsilanti Local Development Financing Authority board plans to lend $275,000 in microloan financing for companies in the Ann Arbor area.

-Washtenaw County and CEED will distribute $300,000 in microloans over two years to businesses run by minorities and women. CEED, which received $50,000 from the county for the project, is tapping funds from the U.S. Small Business Administration to provide the loans.

-SPARK and Washtenaw County are offering $225,000 for “high-growth startup companies” through a new program called the Eastern Washtenaw Micro Loan Fund. The funds are available specifically for companies on the eastern side of the county.

Tony VanderWorp, director of strategic planning and knowledge management for Washtenaw County, said the program targeted the Ypsilanti area could play an instrumental role in building entrepreneurial companies to replace the heavy manufacturing job losses in that part of the county.

“The jobs that are being created today are in these smaller companies, these startup companies, these innovation jobs,” he said. “That’s what we’re trying to do is create jobs to make up for the loss of jobs that we’ve had.”

The microloan programs are already drawing applicants, though officials are reluctant to provide a list until winners are announced.

Simms predicted low-cost loan financing would become more common as governments shy away from grants.

“Government’s tired of granting money,” he said. “The traditional economic development providers of that capital are now saying, ‘Wait a minute, let’s put the money out there in a way that we have an opportunity of recouping it.’”

The microloan trend comes the Ann Arbor region continues to assemble a vibrant venture capital community capable of provider large-scale funding to more mature tech companies.

Jan Garfinkle, managing partner of Ann Arbor-based Arboretum Ventures, which is largely considered Michigan’s top VC firm, said microloan financing would serve an important role in Ann Arbor’s entrepreneurial ecosystem.

“I think it’s a great idea,” she said, “not for companies that would necessarily be venture backed, but for other more service-oriented products where you just need a little bit of capital to get marketing done.”

Contact AnnArbor.com's Nathan Bomey at nathanbomey@annarbor.com, (734) 623-2587 or follow him on Twitter.