Ways Microloans Can Sustain Your Small Business

Microloans are small loans, usually around $25,000 or less, aimed at helping people with low to moderate incomes cover business expenses. They’re typically offered by community-based non-profit organizations and can make a big difference for lower-income entrepreneurs. These loans often come with competitive interest rates and are accessible even to those with poor credit or no collateral.

While not everyone can qualify for a microloan, they can provide the crucial extra funding needed to keep a business afloat when working capital is low. Starting a business without sufficient funding and realistic expectations can quickly lead to failure. Microloans help borrowers avoid this pitfall from the start by offering fast access to funds.

There are several reasons why someone might choose a microloan over a traditional loan. For individuals who don’t qualify for conventional loans due to poor credit or a lack of credit history, microloans offer an alternative. Microlenders often focus on helping minorities and people in underserved communities.

Microloans come with competitive interest rates, especially for high-risk borrowers like startups. The loan terms can be up to 6 years, and interest rates usually range from 8 to 16 percent, which is competitive compared to other high-risk lenders like merchant cash advance and asset-based lenders. Not qualifying for a traditional loan doesn’t mean you can’t get good loan terms!

Unlike banks or for-profit financing companies, microloans are generally provided by non-profit organizations that are more focused on serving the community. This mission-oriented approach means businesses receiving microloans also get access to training, technical assistance, and ongoing support. If a business encounters difficulties, a microlender is more likely to adjust payment terms to help out.

However, it’s important to know the requirements and limitations of microloans. They aren’t designed to fund large businesses with significant working capital or growth needs. Microloans are more suitable for small companies like new food trucks, neighborhood retail stores, or local service providers. If you need more than $100,000 to finance a large operation, microloans might not be the right option.