In general, microloans are considered loans that are less than $50,000 and are used to help cover startup costs and other early expenses for small businesses and not-for-profits. To give some context, the average general small business loan amount given by the SBA in 2015 was more than $370,000. So, a microloan may be a good option if you want to borrow a lesser amount. Microloan funds are distributed by designated community-based non-profit lenders. In addition to providing startup and small business financing, many of these lenders also provide management and technical assistance to their clients.
Any kind of business can take out a microloan. Microloans are often a good fit for sole proprietorships, businesses with few employees, women-owned businesses, minority-owned businesses and other businesses that have problems getting access to traditional lending. They’re great if your business is new and you don’t have a long credit history. They’re also a good way to build up your credit so that you can get lower interest rates and more options with later rounds of funding. If your business needs a small loan and you don’t have access to a traditional bank loan, a microloan might be the best choice for you.
Before you apply for a loan, you should shop around and see what different microlenders requirements are and the different products they offer. Some microlenders operate nationwide while others operate in particular geographic areas, types of businesses, or loan sizes. The SBA maintains a list of microlenders in each state, so that’s a good place to start when you’re looking for lenders in your area. Each has its own set of requirements for loan applications and you’ll need to be aware of the requirements so you don’t turn in an incomplete application. One of the most common requirements is to have a well-written business plan with your new company’s goals and strategies well defined. Doing some research up front can save you a lot of time applying for loans with lenders that aren’t a good fit for you.
Funding is often one of the more frustrating aspects of running a business. Traditional loans are sometimes not an option if your business is small or new. The good news is that you have other options, like microloans, for getting the cash you need to keep your business growing. Whatever kind of funding you pursue, remember to shop around and explore all of your options to make sure you get the best possible fit for your company’s’ future.