Finding the money can be a challenge, whether you’re ready to launch a new business or expand an existing one. Maybe your credit isn’t stellar, or you have struggled with traditional bank loans in the past, but whatever the reason, a microloan may be an opportunity that you haven’t come across yet.
A microloan is a small business loan that banks often don’t want to make. They are typically small loan amounts from $500 to $25,000, but some go up to $150,000. A microloan has lower requirements than traditional small business loans or SBA loans but don’t have super high-interest rates like a credit card or overdraft fee.
Who offers microloans?
There are a few different microlenders in Missouri, and funding often comes from the Small Business Administration (SBA) U.S. Department of Agriculture (USDA)
Microloans are usually provided by community-based economic development intermediaries, city government, or nonprofit financial institutions that have a mission of supporting small businesses and the jobs entrepreneurs create. Some places to look include:
- Missouri Department of Economic Development
- Nonprofit organizations such as Justine Petersen, Grameen America, LiftFund, and Accion
- Community-based microloan providers such as the City of St. Louis or AltCap in Kansas City.
- Peer-to-peer (P2P) lending from LendingClub or Kiva.
Who can apply for a microloan?
To get a small business microloan, eligible borrowers need to be at least 18 years old and have some money in the bank. You also need to meet certain income requirements or show that your previous year’s revenue was sufficient to repay the requested amount.
Many programs target low-income and minority communities to help spur economic development in underserved and high-poverty areas.
What are some benefits of small business microloans?
One of the biggest benefits of small business microloans is that they can help small businesses that don’t have the best credit score or haven’t been in business for a long time to get the money they need to start and grow their company.
Small business microloans also offer borrowers a chance to build their credit history. Many microlenders can be more flexible for borrowers with bad credit than a traditional lender. Some microlenders, however, require good credit.
What can a microloan be used for?
Every program has different guidelines, but most microloans are used to start or grow a business. Funds can typically be used for working capital or purchase inventory, supplies, furniture, fixtures, machinery, and equipment. Funds can sometimes be used for real estate, but not always.
What are the interest rates?
The interest rates on microloans vary but are typically lower than those on credit cards, so this can be a more affordable option for small businesses. Kiva offers small business loans with no interest rate, while LendingClub provides small business loans with an APR of 13.99% – 35.89%.
How to apply
A small business microloan is not for everyone. Microloans are small, the amount you’re looking to borrow isn’t large, and the repayment terms are different from traditional loans. You have to be comfortable with these differences before moving forward.
To get small business microloans, small businesses must prove that they have a viable small business idea and the ability to repay the small business loan. Small businesses must submit an application with their supporting documentation (most lenders require bank statements and a business plan, which can be found online on sites like LivePlan).
Most loans, but not all, will require some form of collateral, as well as the personal guarantee of the small business owner.
Some organizations also provide additional services at no cost, such as small business coaching, marketing assistance, and financial training to help ensure the sustainability of the business.
If you meet the qualifications, a small business microloan can help you get the capital you need to start and grow your small business.