For entrepreneurs, it is essential to have a deeper understanding of the many kinds of financial assistance that they can opt for whenever their business needs it. For instance, there are so-called microloans which an entrepreneur may consider at the time it is difficult for him or her to obtain conventional business loans from a financial institution such as banks. What personal loans are for individuals, microloans are for small businesses.
Indeed, it is worthy of note that microloans set in order to satisfy the need for minimum amounts of financing so to assist business owners in creating jobs in their regions. Take in mind that financial institutions like banks do not really prefer to make loans that are below fifty thousand dollars mainly because the cost to service the credits overshadows the profits. Even though the definition might differ a little hinging on the organization that makes the microloan, pretty nearly, microloans share the following attributes:
- Short-range loans
- Very minimum loans from five hundred dollars by up to fifty thousand dollars
- They are specially designed for enterprises that have only a little or no loan history at all, sole proprietors, startup enterprises that are merely low-cost as well as enterprises that employ only a few workers.
What is more, microloans can be used for many different purposes that consist of machinery or equipment for your business, working capital, furnishings or fixtures, inventory and much more. Additionally, these are commonly utilized to assist deprived populations like firms providing employment in disadvantaged regions, women and minorities. Please be guided that such entrepreneurs might find it quite challenging to obtain loans from financial institutions like banks or other conventional sources of business funding.
How can an entrepreneur obtain a microloan?
It is valuable to note that microloans are securable through what is known as the non-profit community-based organization. Such an organization serves as a medium. For a fact, there are approximately two hundred of them across the United States. For you to have access to the full list of organizations that provide this loan, you can refer to the SBA website.
Meanwhile, there are a few ways on how to do the preparation when you finally decided to apply for a microloan and these include the following:
- See to it to come up with a business plan. Just like with any other enterprise, it is very fundamental to compose a business plan. The reason behind this is because lenders prefer to check what you plan to do with the funds and your future plans for your enterprise.
- Make it a point that you can settle the monthly payments on time as agreed. Keep in mind that it is always a good thing to improve your personal credit rating. You can consider taking steps in order to improve it prior to applying for a microloan if in case your personal credit rating is not good.
- It is highly advised that it is always better to just stick with the microlenders available in your own region.
- Always exhibit preparedness to invest some of your own capital in the enterprise.
Essentially, through taking steps in checking your microloan options thoroughly, composing a detailed business plan as well as completing all of the requirements prior to applying for this form of a loan, then, you will definitely have the opportunity to bolster the likelihood of obtaining the money you badly need.
The good news is that there are a number of microlenders that concentrate on specific communities, regions or states. In line with this, you can also find some microloan sources through the chamber of commerce, SCORE office, local municipality and economic development organization, SBDC was otherwise known as the Small Business Development Center or the SBA district office.
The Positive Side of Microloans
These are actually a great source of financing for enterprises that haven’t borrowed from a financial institution such as a bank. More than that, the program offers a source of a smaller amount of credits that several financial institutions are hesitant to service particularly as a business loan.
Moreover, the loans can be more beneficial for startup firms that come with smaller capital needs and limited operating history. Take into consideration that microloan borrowers may take advantage of the mediator’s business expertise.
The Negative Side of Microloans
It is crucial to be aware of the fact that the interest rates for microloans tend to be higher as compared to the standard small enterprise loans. In the same way, microloan financing can also be strenuous to obtain if your community does not have a non-profit that serves as a mediator for the program.
Also, take into account that credit, as well as lending requirements, differ from among go-between lenders. Frequently, some form of personal guarantee or what is termed as collateral is needed so that the business owner can possibly get a loan.
It is good to deal with microlenders since they are considered more open-minded as compared to many conventional financing sources these days. They are more eager to ponder on the big picture and in how your enterprise, as well as your expansion plans, shall benefit your community.