A microloan is a low-interest short-term financing tool provided by small-business-friendly lending organizations such as banks or credit unions that work with the U.S. Small Business Administration (SBA). Microloans often range between $5,000 and $50,000 and can be used by small businesses for several purposes, including payment for inventory, machines, office and business supplies and equipment, working capital. A microloan can be particularly helpful for businesses that do not have a credit record or do not qualify for a loan from a bank.
Where to Get an SBA Microloan
One of the major aspects of knowing how micro loans work is to know where to get the loan. There are several g institutions and non-profit organizations helping businesses to secure microloans across the nation. Therefore, business owners are advised to carefully select the most suitable loan provider for their business. Microloan lenders work with the SBA to provide flexible and low-interest loans to small businesses.
Why a Business May Need a Microloan
Several businesses have been turned down by banks when applying for a loan. Therefore, microloans come as a savior to such businesses. Some of the reasons for opting for a microloan include inadequate collateral, inadequate cashflow, bad credit history or credit score, and a relatively small loan amount.
How does a microloan work?
A microloan is often used by early-stage startup businesses or other small businesses that need more working capital to fulfill operational expenses. Here is a summary of how microloans work
Find a microloan provider approved by the SBA
Do some research to ensure their business nature and background to ensure their suitability
Apply for a loan
Factors considered by lenders before providing a microloan
How long the business has been in operation
The amount requested
The location of the business
Financial track record
Estimated likelihood that the borrower will be able to repay the loan within the given time frame