Small business financing: An introduction to microloans
Whether you’re ready to launch a new business or expand an existing one, you’ll likely need extra cash to make the move. And, depending on how long you’ve been in business, the state of your business credit and your ability to come up with collateral, getting a traditional business loan simply may not be in the cards.
So what now?
Well, if the loan you’re seeking is less than $50,000, you may want to consider a microloan.
What’s a microloan?
As the name implies, microloans are typically smaller than traditional business loans. For instance, the Small Business Administration (SBA) caps its microloans at $50,000 and some organizations pool lender contributions as small as $25 to generate financing. Microloan terms and interest rates vary by the lending organization.
Who offers microloans?
Microloans are usually provided by community-based, nonprofit micro-finance institutions that want to help people like you start or grow a business. Good places to start are:
- Nonprofit organizations in your area
- Microlender search portals
- Small Business Administration (SBA) loans
- Peer-to-peer (P2P) lending
Who can apply for a microloan?
You can! While some micro-financing organizations tend to favor applicants with low cash reserves or poor credit, or those living in rural or disadvantaged communities, there are specific micro-financing programs for specific types of businesses or business owners (women or veterans, for example).
And as we’ve seen with crowdfunding and P2P lending, sometimes it’s the big idea that captures lenders’ cash — along with their hearts.
How to prepare an application
Micro-financing organizations will want to see a business plan. So if you don’t have one, now’s the time to contact your local MO SBTDC. You should also know your credit score and be working toward establishing good business credit. If you’re looking at crowdfunding, get ready to go into fundraising mode, too.– Contributed by “Joe Banker” through a partnership with US Bank.
If you liked this post you might also like: