A microloan is an excellent vehicle for small business owners who wish to gain access to capital. It aims to fill a need in the loan market for small businesses where other lending means are not available. These are individuals who might not have stellar credit or were rejected in the past by traditional lenders such as banks and credit unions.
Generally, the amount loaned maxes out at $50,000. Although this amount is considered low, the money can be beneficial to sole proprietors or have a few employees and want to expand. Microloans help start-up businesses that do not require a substantial upfront investment.
Who Are Microlenders?
A microlender can be an individual or institutional investor. However, most often, they are business organizations and government agencies. The United States Small Business Administration (SBA) provides all certified microlenders in each state.
PayPal also offers small business loans. But, be aware that this financial giant can request a high weekly payment. In some instances will provide an option to take a percentage of your sales each week or month. This vehicle could leave you in a bind if you need the money for other expenses.
Microlenders are community-oriented, so not only is it easier to qualify for a loan, they often provide consulting services and small business workshops. Some microlenders require the business owner to attend a workshop or conference before obtaining a loan.
How Much Interest Will I Pay?
Expect to be charged a much higher interest rate on a microloan than on a conventional business loan. But due to the size of the loan, it may be easier to repay in a shorter time. This gain can balance out the interest you would pay on a long-term conventional loan.
You’ll have more flexibility with a microloan. Due to the personal relationship with your lender, they are more approachable. They may seem more willing to help if your circumstances change and you’re in a pinch.
There are fewer risks involved with a microloan and a higher chance of being approved if the financial needs are less than $50,000. A microloan is also an ideal means of quickly obtaining working capital as the average approval time is 14 business days. That’s much shorter than a conventional loan, which could take weeks or even months.