By Rieva Lesonsky

Microlending has shaped up to be an important financing tool for America’s entrepreneurs during the recession. But because microlending organizations must put up some of their own money as a “loan loss reserve” and many lack capital to do so these days, some funds available for microloans are going unused.

Recognizing the problem, Bank of America recently stepped up to the plate, announcing it will provide $10 million in grants to nonprofit lenders such as Community Development Financial Institutions (CDFIs) to leverage funds from the Small Business Administration (SBA) and the U.S. Department of Agriculture (USDA) to make loans to small and rural businesses.

The grants will be used as loan loss reserves and could enable up to $100 million in low-cost, long-term capital for small business microloans nationwide over the next 12 months.

“Helping strengthen small businesses and new start-up companies stimulates job creation and is critical to our nation’s economic recovery. Bank of America is empowering these entrepreneurs by directing private sector capital to unlock exponentially greater amounts of federal dollars for their businesses,” said David Darnell, president of Global Commercial Banking, Bank of America. “Even the smallest grant enables a CDFI to leverage as much as ten times that amount to lend to small businesses, which helps initiate a ripple effect impacting job growth, spending and overall economic expansion.”

Bank of America is already the nation’s largest investor in CDFIs, with more than $1 billion in loans and investments to 120 CDFIs in 37 states.

The bank is also increasing its spending with small and midsized businesses, having pledged to purchase $10 billion in products and services from these suppliers in the next five years.