How MicroLoans Help Small Businesses
One of the biggest problems with starting a small business is the amount of money it takes to get up and going. Individuals can spend thousands of dollars on business expenses before they even see a profit. This can cause them personal and business financial troubles. Whether you have a small startup company or you need a business loan to help fix your business, micro loans could be the financial solution your business needs to succeed.
Learn more about the MicroLoan Program and see how it can help your business grow.
What is the MicroLoan Program?
The MicroLoan Program is a financial lending program run by numerous government and non- profit organizations. Many of the programs are specifically designed to help new businesses, although loans have been issued to growing small businesses as well. Loans are issued through partnerships between banks, non-profit lenders and the government, which allows businesses to gain access to loans with smaller interest rates.
Because loans are issued through different programs, requirements may be tighter than a traditional loan. Businesses have to show a need for the MicroLoan and explain how the money will be used. Most of the loans issued are smaller amounts, typically less than $15,000. The maximum loan amount is $50,000 and the maximum term is six years, which makes this option practical only for those seeking small amounts. In certain circumstances the loans can be higher.
How MicroLoans Help Small Businesses
Getting a traditional loan for a starting or growing business can be difficult. Banks and private lenders often require businesses to already be established before they will invest in them. If the business is new, the owner needs to take on personal risk in order to get a business loan. The higher the loan amount, the greater the risk.
All businesses take money to get up and running. In some cases, business owners just need some working capital in order to get the ball rolling. Other expenses, such as advertising, real estate acquisition, purchasing merchandise or equipment, hiring employees or accounting can add up very quickly. MicroLoans help give small businesses the opportunity to borrow money with a low interest rate.
Different Loan Options
The SBA program is one of the more popular loan programs as it’s provided by the government. It does require good credit and has a handful of other approval requirements, which can be reviewed here.
Accion USA is another popular organization which prides itself on small business owners get the funds they need to start or grow. They are a signatory of the Small Business Borrower’s Bill of Rights and take responsible lending seriously. Their loans sizes range from $5000 to $50,000 with rates as low as 8%.
Microloans for agriculture are another program for rural America. This program is also sponsored by the government and covers off a range of agriculture related operating needs. Loans can be used for numerous needs such as farm operations or other small businesses tied to the agriculture industry such as restaurants, grocery stores and hardware/equipment shops. Learn more here.
Getting Approved for a MicroLoan
Securing a microloan with any organization isn't always an easy task. Applying is very similar to applying for a conventional loan. There is less of an emphasis on your credit score, and more of an emphasis on your overall application. Micro-lenders may have specific age or credit requirements, and negative credit factors can disqualify you from working with specific lenders (but not all).
The history of the business and owner are both crucial when it comes to getting approved. Lenders want to work with strong businesses or ideas that have a lot of potential. When you apply, you will need to present your business plan and explain how the money you borrow will be used. If you have an established business already, and need a cash injection for growth, qualifying may be easier.
In addition to microloans, reviewing different grants and subsidies is a great way to access cash to help launch or grow a small business. Get more info on government grants here.