Items filtered by date: September 2017
19 September 2017 In LEF Blog

Microloans are very small loans to borrowers who typically lack collateral, steady employment and verifiable credit history.

The U.S. Small Business Administration (SBA) established a microloan program in 1992 to increase the availability of very small loans. SBA microloans are up to $50,000, with an average microloan of about $13,000. The SBA microloans are available through nonprofit intermediaries.

How to prepare to apply for a microloan:

  • Business Plan
  • Ensure you will be able to make monthly payments
  • Use microlenders in your area
  • Be willing to invest some of your own money in your business

Upside: Microloans are an especially good source of funds for businesses that have never borrowed from a bank. The program provides a source of smaller loans that many banks are reluctant to service, especially as a business loan.

The loans can be best for startup companies with lower capital requirements and limited operating history. Microloan borrowers may benefit from the intermediary's expertise in business.

Downside: Microloan interest rates tend to be higher than for standard small business loans. SBA microloan funding can also be difficult to get if your community does not have a nonprofit serving as an intermediary for the program.

Lending and credit requirements vary among intermediary lenders. Often, some type of collateral or personal guarantee is required in order for a business owner to obtain a loan.

More Tips: Microloans can pay for working capital, inventory or supplies, furniture or fixtures, and machinery or equipment. 

If your business doesn't qualify for an SBA-funded microloan, there might be other local microloan programs that can offer an alternative. When it comes to finding one, asking around might be the best strategy.

Source: Entrepreneur


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