What are Microloans and how can you get one?
Wanted to share an alternative loan option with you called “Microloans”
Microloans are a good alternative lending option for many business owners so they’re good to at least be familiar with and to have in your loan arsenal.
They are typically best suited for small business owners or startups that have a thin credit file or can’t secure funds through a traditional bank.
Here some pros and cons of Microloans:
Pros
- Reasonable interest rates (6%-18%)
- Favorable repayment terms
- May help establish business credit
- Available for many uses
- Collateral usually not required
Cons
- Small loan amounts ($14,000 average for SBA microloans)
- Some require lengthy documentation
- Past credit issues can still disqualify you
The Purpose of Microloans
Microloans are smaller loans often made by non-profit organizations (such as Community Development Financial Institutions (CDFIs) and other lending institutions with the goal of helping underserved entrepreneurs get access to capital.
Some focus on certain groups of entrepreneurs, such as immigrants or veteran, women or minority entrepreneurs.
Others may focus primarily on helping spur job growth in underserved communities and many focus on helping small business owners in specific geographic areas.
They may charge slightly higher interest rates than traditional bank loans, but less than other financing sources that may be available to entrepreneurs who fall in a higher risk category due to time in business, revenues and/or credit scores.
Microlenders often provide “technical assistance” which means they provide mentoring or entrepreneurship education to help the business owner be successful.
Part of their goal is to help business owners build good credit and a solid financial history to eventually qualify for more traditional forms of funding.
Eligibility Requirements
Time in Business:
While many lenders prefer to work with businesses with at least two years in business, microlender may help startups as well.
Credit:
Most of these lenders are more flexible when it comes to credit requirements. They may check business and/or personal credit, but can often work with borrowers who can demonstrate that their credit problems are in the past and no longer an issue.
Revenue:
Lenders may be able to offer small loans to businesses with lower revenues and/or startups that are pre revenue, but have a solid business plan and projections.
Conclusion
While Mircoloans may not be ideal considering the rates and small loan amounts, they are a good funding option to have available just in case because they’re easier to qualify for.
Get qualified for business funding today by visiting our funding platform ROK Financial here.