What are Microloans?
Microloans are small loans intended for small businesses or small business ventures. Borrowers apply for microloans for many reasons, some need start-up capital, working capital, equipment, furniture etc. Issued by individuals and not financial institutions, a typical microloan lender will lend $10,000-$35,000 with an appropriate interest rate that levels out the risk.
The loan approval process for a microloan varies from borrower to borrower depending on the applicant’s current financial situation. Lenders in an approval process are likely to review company financials, personal financials, credit scores, business plans, and tax information. Lender to lender, however qualifications for a loan approval may vary.
While it is considered easier to receive a microloan compared to a traditional loan, make no mistake, lenders conduct varying degrees of due diligence prior to issuing funds. Microloan programs are flexible and are intended for assisting new and small companies tackle their first stages of business. Typically, you’ll find that microloan lenders work with applicants and their goals along the way, whereas with traditional loans there is a rigid approval process solely concerning an applicant’s ability to repay.
Example of a Microloan
Lenders in a microloan application may decide to evaluate a large range of information regarding the individual applying, and his or her business. Let’s say you have a small business and are planning on applying for a microloan. You will want to prepare yourself with the following criteria prior to speaking with a lender:
Make Sure Your Credit Score is in Good Shape: Lenders probably won’t deny or approve your loan based solely on your credit score rating, however a score of 680 or lower could hurt your application. You will want to make sure you do your best to improve your score prior to meeting with a lender if it is low.
Be Ready to Talk About Your Background: Lenders tend to take a personal approach with microloans. They may ask for a resume, about your experience in the industry that your business is in, about your education background etc., so it is important that you are prepared to talk about why you are a good candidate for receiving a loan.
Your Business’ Experience: All lenders are interested in a borrower’s experience and track record. If your business has been operating for some time, you will want to highlight the successes so far, and any growth potential you see as the owner.
Your Business Plan: You will want to demonstrate your organization, mission and projections to a lender. They want to see how serious you are, and how effective your business can be with the loan in the industry that it’s in. A strong business plan can go a long way in a microloan application.
Overview of Financial History: Information on previous lines of credit, other loans, balance sheets and tax returns will assist a lender see that you, as the business owner, are running a financially healthy business. Even if your business has not been established for very long, financial diligence can go a long way.
Microloans are flexible small business loans intended for startup purposes or small business ventures. An application may cover a range of personal information to business financials, if applicable. If you are a small business, or looking to launch a small business, a microloan may be right for you. It is important to take into consideration that your chances of approval will vary depending on your current financial situation, reason for the loan, and business background. Shopping around for lenders for the right microloan and interest rate will be beneficial to all borrowers, so be sure to do your homework before accepting a lender’s offer.