What Is a Business Microloan?
Microloans have been around for decades yet many small business owners are not aware of their options for acquiring these loans. A business microloan is a small amount of money borrowed from a financial institution or lender that can help business owners cover expenses and get their business up and running without the need for collateral.
This type of loan is often used by start-up businesses that require funding in order to purchase supplies, hire staff and start marketing their products or services. With a business microloan, small business owners don’t need to commit to lengthy contracts or a big lump sum payment up front.
Benefits of Business Microloans
Many small businesses can find great advantages when using business microloans as an alternative to traditional financing. The advantages of business microloans include:
-
Quick Access to Funds – Because business microloans do not require collateral, they typically offer fast access to capital. Most lenders will approve business microloans within two or three days, giving small business owners the funds they need quickly.
-
Simple Applications – Business microloans generally require a less detailed application process than other types of loans. To apply, borrowers usually only need to provide basic information about their business, such as the type of product or service they offer, how long they have been operating, and how much capital they need.
-
Flexible Loan Terms – Unlike traditional bank loans, which require borrowers to agree to a fixed repayment period, business microloans often have flexible loan terms. This gives small business owners the freedom to repay the loan when it is most convenient for them, allowing them to manage their funds better and stay on top of their budget.
-
Lower Cost – Business microloans are often less expensive than other types of loans. Since the amounts are small and lenders have a lower risk, interest rates tend to be much lower than other loan products.
-
No Collateral Required – Most business microloans do not require a business to put up collateral as security for the loan. This makes it much easier for small business owners to secure a loan without risking their assets.
Who Qualifies for a Business Microloan?
Many small business owners can benefit from a business microloan. Qualification requirements vary, but most lenders require businesses to meet certain criteria, such as:
- The business must be in operation for at least six months
- The owner must have a good credit score
- The business must demonstrate profitability
In addition to these qualifications, most lenders look at a business’s potential for success. Lenders typically want to see a business plan that outlines how the company expects to make money and repay the loan.
Where Can Small Business Owners Find Business Microloans?
Small business owners can get a business microloan from a variety of sources, including:
-
Banks and Credit Unions – Traditional banks and credit unions offer business microloans and provide competitive interest rates.
-
Small Business Administration (SBA) Loans – The SBA provides microloans through partnerships with local lenders and nonprofit intermediary lenders. These small loans are often easier to qualify for than traditional bank loans.
-
Online Lenders – Online lenders provide fast access to capital, but often charge higher interest rates than traditional lenders.
-
Crowdfunding – Business owners can use crowdfunding to fund their business. Instead of obtaining a loan, they can solicit small donations from family, friends and other investors.
Business microloans are a great way for small business owners to get the capital they need without risking their existing assets. These loans offer quick access to funds, flexible loan terms and lower costs than traditional bank loans. Small businesses owners can find business microloans from traditional banks and credit unions, online lenders, the SBA and crowdfunding.
