If you have founded a startup and need financing, a microloan could be exactly what you need. These loans can be tremendously helpful to those who have an established business as well as those who need money to get started. The more you learn about these loans, the more likely you are to obtain the funds you require. While this is not a viable option for everyone, it is still at least worth looking into.
How Does a Microloan Work?
A microloan works in much the same way as a traditional bank loan. You will be given a certain amount of money that must be paid back by a specific date. The loan amount can be anywhere from $2,000 all the way up to $25,000. Each lender has their own set of requirements that you will need to know about before applying. Small businesses are the most common solicitors of these loans, though they can be beneficial for individuals as well.
Benefits of Taking Out a Microloan
There are a number of benefits associated with taking out a microloan, including:
- Smaller borrowing amounts: The fact that microloans tend to give out smaller amounts can actually work in your favor. It makes it easier for you to get exactly what you need without borrowing too much. This way you don’t end up spending more than you have to, which is always a good thing.
- Equal payments: Since most microloans are paid in installments over months or years, each payment is usually the exact same amount. This makes it much easier for you to figure out whether or not you can afford to borrow the money.
- Help with your business: A lot of microlenders help the businesses that borrow from them. They can assist you with creating a detailed business plan and coming up with marketing strategies. This can be particularly helpful if your business is new.
- Bad credit isn’t always a problem: Plenty of businesses with bad credit have gotten microloans. You don’t necessarily need a high credit score to obtain funding this way.
Drawbacks of Microloans
There aren’t many drawbacks to getting a microloan, but it’s important to remember that the interest rates can be fairly high. Everyone’s rate is different, and it depends on multiple factors. This includes the state of your credit as well as the lender you choose. You can reduce your chances of getting a too high interest rate by shopping around. Take the time to get quotes from various lenders before filling out an application for a microloan.
Qualifying for a Microloan
You will have to fulfill certain qualifications and requirements to get a microloan for your business. These qualifications are largely determined by the lender. This is precisely why you need to take the time to find out what requirements each lender has before even fill out a single application. You typically have to be at least 21 years old, though younger people are sometimes permitted to get this type of loan.
It will be necessary to submit a detailed plan for your business that the lender can look over. Some lenders will be able to help you out with this. The more confident they are in your business, the better your chances will be of getting approved.
When you are ready to apply for a microloan, there are a few different things to consider. You will be able to do so online, and the process is generally streamlined. It won’t take very long to do, but it is important to be organized and thorough. Collect your expense statements and any other documentation you need. It is crucial that your application is complete, because otherwise the lender won’t take you seriously.
Finding a Microlender
There are lots of different microlenders to choose from, so you will therefore have to do some research. The AEO’s website can provide you with a list of these lenders in your state, and you should take the time to look it over. Take all the time necessary to find a reputable lender that you can trust to provide you with the best possible loan terms. It is a good idea to meet or talk with some of these lenders before making this type of decision.
The fact is that microloans can be immensely helpful for small businesses that are in need of funding for one reason or another. Whether you need money to get your startup on its feet or your existing business is struggling, this is an option to consider. It has helped countless people develop thriving businesses. You don’t need to have a high credit score, but there are still requirements and qualifications you must satisfy. The more you learn about these loans, the easier it will be to make one work for you.