Whether you are looking to finance your small business or need to build your credit history, there are numerous options available. One of those is microlending, which provides funding to entrepreneurs who may not be able to qualify for a traditional bank loan.
Many microlenders also focus on uplifting communities and encouraging entrepreneurship. However, there are certain factors that you should consider before investing in this type of lending.
Getting a Microloan
A micro loan can help you cover the cost of small business expenses. These loans typically have a lower interest rate than a credit card and may come with additional assistance like coaching or mentoring to improve your chances of success. Since micro lenders don’t rely on profits from interest and fees, they usually focus on lending to people or businesses that align with their mission. This makes them a good choice for people who may not qualify for traditional financing, such as minorities or women.
Most microlenders are non-profit organizations that operate independently from the government or large financial institutions. The Business Center for New Americans, for example, offers microloans to minority and women small-business owners in New York City. Its borrowers receive working capital and fixed asset microloans that have repayment terms of six to three years.
Other nonprofits, such as Kiva and Accion, use a peer-to-peer financing model to match entrepreneurs with individual lenders. These lenders have different guidelines on who they lend to, loan amounts, and credit requirements. They may also require a personal guarantee and collateral, especially with lenders who work with certain social causes. They may also limit what types of business expenses a micro loan can be used for. If you need to purchase expensive machinery, for example, a microloan may not be the best option.
Collateral Requirements
In many cases, 소액대출 are not backed by collateral like real estate or business equipment. Instead, lenders rely on the borrower’s personal credit and business credit to determine their eligibility for the loan. This is why it’s important to have a good or excellent personal and business credit score before you apply for this type of financing.
Microlenders are also accustomed to working with borrowers who have a limited credit history or are in the process of rebuilding their credit. As a result, they are often more flexible when it comes to the factors that go into credit decision making. However, there are some borrowers who may not qualify for a micro loan if they’ve recently gone through bankruptcy or foreclosure.
While many microlenders don’t have strict collateral requirements, they do require that you provide a personal guarantee and may ask for additional documentation, including the company’s business plan, an income statement and balance sheet, and other financial records. Additionally, it’s important to be prepared for a longer repayment period and higher interest rates than you would find with traditional bank loans.
One notable example of a lender that disperses microloans is the Women’s Initiative for Self Employment (WISE), which helps female entrepreneurs start and grow businesses such as cleaning services, daycares and restaurants. The organization requires that borrowers complete a mandatory 11 week business training course before they are eligible to receive funding.
Interest Rates
As with any loan, there is an interest rate associated with a microloan. Generally, this is higher than traditional business loans, as the lender takes on more risk by lending to smaller companies that may not have as much of a track record to back them up.
Many specialized lenders offer microloans. These include government agencies and community-based organizations. Additionally, peer-to-peer (P2P) microlending companies like Kiva and LendingClub connect borrowers with lenders. Often, these companies use crowdfunding to provide funds for entrepreneurs in countries around the world that don’t have access to traditional funding.
During the recession and its effects on small businesses, the popularity of these types of funding options grew. This is likely due to the fact that many companies were not able to qualify for traditional 예금계산기, especially those with poor or no credit.
In addition to having low credit requirements, microloans tend to have shorter repayment terms than traditional business loans, which can help reduce stress on a company’s cash flow. These factors make them attractive to both borrowers and investors. However, it’s important to note that, depending on the lender and the type of microloan, some may require collateral or have other restrictions attached to their loans. For this reason, it’s essential to thoroughly research all your options and make sure you understand the terms of each before choosing one.
Application Process
For those who need to grow their business quickly but don’t have the credit or time to build up a traditional business loan, a micro loan may be the answer. These loans can range from a few thousand dollars to $100,000, depending on the lender. They’re typically used for brand-new businesses or companies that have limited revenue generation. These types of business owners tend to be seen as higher-risk by traditional lenders, so these loans can have more restrictive requirements. Many lenders require a personal guarantee, and some will also ask for collateral. This could include your business equipment, real estate or even your own car. Many microlenders will also ask for a detailed business plan. This is important because it can help you convince the lender that you will be able to repay the loan, despite your minimal business history and lack of revenue.
The Small Business Administration takes a backseat with these SBA loans and leaves a lot of discretion to intermediary lenders to determine who should receive a micro loan. However, the agency does set some parameters around interest rates and eligible loan uses. The microlender you choose will have its own specific loan requirements as well. For example, if you’re applying for an SBA microloan through a CDC/CDFI, you’ll need to provide proof of your income and assets as well as your business plan.
