Business microloans explained
Are small expenses holding back your business? A microloan might be able to help.
Small business owners know that taking out a $50,000 loan isn’t always the best way to pay for something as minimal as a broken oven. However, you might find that you’re in need of some financing to get your business up and running again. This is where microloans come in.
We take you through what a microloan is, who they’re best suited for and where you might find one.
A microloan is what it sounds like: A small loan. Business microloans are typically around $1,000 or more and are designed to help out businesses that need access to a small amount of money. They’re a good option for startups and businesses in underdeveloped areas, which typically don’t need a lot of capital but might have trouble finding financing.
Here are some things to keep in mind:
Microloans can be a solid way to pay for…
- Inventory and supplies.
- Equipment or furniture.
- Small building improvements.
- Microloans often come with shorter terms and higher interest rates than other forms of business financing.
- Many microloans require a personal guarantee from one of your business’s owners.
- They’re not always available from traditional lenders like banks, which prefer to hand out larger, more profitable loans.
- A lot of microloan options are available for business owners with poor credit or little financial history, as well as brand new business owners.
Consider a microloan if:
- You only need to borrow a few hundred or thousand dollars.
- Your business is a startup.
- You’ve had trouble qualifying for larger loans.
- You’re located in an underdeveloped area.
- You or your business has bad credit.
Consider other options if:
- You have an established business that could easily qualify for less costly loans.
- You need more than $50,000.
- You’re looking for continual access to financing — like a line of credit.
- You’re looking to pay back a loan over a number of years.
Increase your chances of approval by following these tips for success:
- Make sure you’re eligible. Check the eligibility requirements before you apply for a loan to avoid wasting your time.
- Prepare your documents. Gather the information you’ll need to fill out your application to ensure things go smoothly.
- Know your finances. Know how much you need, the payments you can afford and how long it will take you to pay back.
- Shop around. You won’t know if there’s a microloan that’s perfect for your business unless you compare your options.
- Look locally. There are often business grants offered locally, through nonprofits, government programs and incubators.
Microloans can have higher interest rates and shorter terms than other types of financing, but if your business needs only a small amount, a microloan could be a better option overall.
If you’re not looking for a small loan for your business, you might want to look elsewhere for financing. Before signing a loan contract, compare your options to make sure you find the best loan for your business needs.