November 17, 2021
How to Secure and Use a Microloan for Your Business
Luckily, that’s where microloans come in; this type of financing comes in small amounts and can be used for various business costs. If you’re interested in taking out a microloan, keep reading to determine if this funding option is right for your business.
What Is a Microloan?
Microloans are small loans that can be utilized by startups or established small businesses. With less strict guidelines and flexible terms, these loans are a good option for businesses that don’t qualify for traditional bank loans. Most notably, even startup owners and businesses with poor credit scores can qualify for microloans. Typically, lenders will be more comfortable lending small loan amounts to these businesses, because there will be a smaller amount for them to repay. Microloans are offered by the Small Business Administration (SBA) and alternative lenders.Typical Microloan Terms and Amounts:
The most common microloan lender is the SBA. They offer microloans that are under $50,000, with an average amount being $13,000. The amount offer that you receive will be based on your financial situation, your business’s needs, and how you plan to spend the money. As previously mentioned, this type of loan usually has flexible repayment plans. As noted in an article from Inc., microloan repayment terms usually span numerous years and can be paid off in installments. While interest rates for this financing tends to be higher than traditional loans, often between 12 to 18 percent, the reasonable monthly payments are preferred by many small business owners.How to Qualify for a Microloan:
Although traditional business loans are often difficult to qualify for, microloan lenders tend to have less stringent prerequisites. Still, eligibility for this type of financing will vary from lender to lender. Be sure to review guidelines carefully before applying, as this will help you increase your chances of securing the loan. For instance, many lenders will still require that applicants be a for-profit organization based in the United States, have decent credit scores, and meet a time in business requirement. They may also ask to see recent funding numbers, to get an understanding of your business's financial situation.How to Apply for a Microloan:
Like any other small business loan, you’ll apply for a microloan through a financial institution or business loan lender. When applying for microloan programs, most online lenders will require the following documents and details in order to complete their application process:- A detailed business plan
- Credit history
- Details on how the funds will be used
- Desired loan amount
How to Use a Microloan:
When you receive this financing, it’ll probably come with guidelines on what you can and cannot use the funds for. Some lenders will be stricter than others when it comes to these guidelines. For instance, an SBA microloan can be used for the following costs:- Working capital
- Business supplies and office furniture
- Additional inventory
- Equipment