LEF Tips for Micro Lending

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 www.entrepreneur.com/article/52724