Understanding Microloans So You Can Take Advantage Of Them
In 1992 the Small Business Administration laid down the foundation for the Microloan Program that increased small loan availability for the small business borrowers. Since then, thousands of loans were handed to businesses with money going towards various uses like supplies, working capital, fixtures, inventory, equipment and machinery. We are talking about a loan that should go as high as $50,000. The average one taken out is of around $13,000.
How To Get A Microloan
The microloan is available through the services of community based nonprofit organizations. These act as intermediaries and we have access to around 200 that can be contacted in the US.
In order to apply for a microloan as an alternative to the regular investment options for financing like Betterment, you will have to go through the following steps:
- Establish a good business plan.
- Only consider loan options that you can repay on a month-to-month basis.
- Use the services of the microlenders with an office near your main office.
- Prove that you are about to invest most of the money in your business.
According to the top finance bloggers in the industry, there are many advantages of taking out such loans, with them being particularly useful when there is a need to get more funds for a company that never borrowed money from a bank in the past. We are talking about a program that offers small loans for amounts that many banks will not want to service as one of their business loans.
You can utilize these loans if you want to invest in a startup company and there are low capital requirements, together with limited operating history. The borrowers will also be able to benefit from the expertise offered by the intermediary service provider.
The big disadvantage is that interest rates associated with microloans are almost always higher than the regular business loans you can take out. At the same time, we need to realize that it is tough to obtain such a loan in the event that the community you are a part of does not have a special nonprofit organization that can act as an intermediary.
Remember the fact that credit and lending requirements will vary from one intermediary lender to the next. In many situations there is a need to have some sort of personal or collateral guarantee in order to get a loan.
On the whole, the microloans can work great as capital for inventory, supplies, fixtures, investments, equipment or machinery. In the event that the business does not qualify for the SBA funded microloan, which is the most common one, there are some local programs that can be utilized as a suitable alternative.
In most situations you will have to ask around in order to see what microloans are available where you live. That will help you to put your hands on really good deals so that you can obtain the capital that you need at the moment. Consider this opportunity since there are many startup managers that have no idea about them.