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What Is A Microloan? Featured

What Is A Microloan? "Shane with a fan of American one hundred dollar bills."

Small businesses require financing at times, but options that exist for large corporations are not always the best for entrepreneurs. Larger than necessary loan amounts, unforgiving terms, or unrealistic payback schedules make typical business loans prohibitive for small business. However, private loans from family or friends are not ideal, either. What are the options?

More and more financial services include microloans, smaller amounts that range anywhere from a minimum of a few thousand to about $50,000. These are the types of loans that manage the needs of small businesses. From advances to cover cash flow blips to payments for start-up equipment, a microloan can fill in and more easily be paid back.

So rather than take out a huge business loan that comes with gigantic interest, which is like clobbering a mosquito with a sledgehammer, a microloan will serve as a band-aid that is easily applied and then removed. They make good sense for small businesses that do not require substantial help but still need some.

Microloan Lenders

Some major financial institutes like banks now offer microloan options for small businesses, so it is still worthwhile to ask, but other lenders specialize in services for small businesses. Sites like PayPal that support entrepreneurs’ cash flow offer microloans, but there are dedicated organizations that offer microloan programs, too.

Nonprofit organizations exist to provide support for entrepreneurs. From women in business to other niche markets, these organizations provide financial services to ensure solvency of small businesses within their sector.

Government agencies also offer support for small businesses, but their microloans tend to be conditional. The loans are available for specific needs, like purchasing capital equipment or inventory, but not for real estate or debt payments.

Peer-to-peer microloans are another option. Groups of entrepreneurs working together each provide a portion of a loan amount, allowing a borrower (another entrepreneur) to receive the full sum. In other words, the small business owner can seek investors.

Features Of Microloans

The process to apply for a microloan depends on the source. Some may require you to differentiate your business and justify your company, so be ready to explain your mission, vision, and backstory. Others will want to ensure you fit their criteria and promote their agenda, like the nonprofit organizations. There are a few that will follow traditional procedures like checking your credit score and assets. Learn about any qualifications before you take the time to apply.

For the most part, standard loan protocols will apply; you can expect the usual framework that includes a principal, interest rate, loan terms, and repayment options. You will want to shop around and inquire about the different options to find one that fits your risk tolerance.

Current Circumstances

Within the current pandemic, there are complications as well as provisions to the usual procedures. It is still possible to secure funding, and in some circumstances, Coronavirus relief options are available.

There may be struggle right now, but in many ways, that is the nature of the business for entrepreneurs. While this pandemic is unprecedented, the need to be resilient and the consistent push to overcome challenges is not new. Whether a microloan keeps business afloat or bridges a gap toward future success, it is a worthwhile business practice to explore.

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