When a Business Microloan Might be a Good Idea
16 Mar, 2017 / Comments: Comments Off on When a Business Microloan Might be a Good Idea / By William Mahnic
Microloans originally started as a form of financing used to help poor businesses that were struggling to get their start, typically in poorer countries, and was developed as an alternative to loan sharks. Today, microloans are used all across the United States, as well as around the world, meeting the financial needs of small business owners, allowing them to start and grow their businesses. Specific microlending programs vary from bank to bank, and many of them even offer classes on marketing, finance, accounting and other business practices that can really help you and your small business to flourish. Microloans aren’t for everyone. Here’s how to know when a business microloan might be a good idea for you.
The Bank Says No
You do your homework. You go to the bank prepared with your business plan and a breakdown of your finances and expenses. You think you have everything together to get the loan you need for your business. Yet, for whatever reason, the bank says no. There are many reasons that the bank may deny you your loan, from collateral to credit score, to the amount you requested. While this can be disheartening, just because the bank says no doesn’t mean you’re out of luck.
You Only Need a Small Amount
Most banks don’t like to give out traditional loans for smaller amounts of money. One of the main reasons is that banks are businesses, too. It costs them just as much to underwrite a check for $500,000 as is does for $50,000. Banks understand that they can make more money giving out larger loans than they can smaller ones, so they won’t usually bother with small requests. Microloans are specifically designed for giving out smaller loans, with shorter term limits. Most lenders will provide up to $35,000, although there are many who will loan as much as $50,000.
You Have Little to No Credit History
Banks like to see that you have a solid, well established history as a business; that you are trustworthy and credible. They want to see that you are generating profits and can make payments on time. If you are just getting started, or have only been operating for a short period of time, you won’t have the established history that the banks demand for a traditional loan. A microloan, on the other hand, cares less about the numbers and more about the bigger picture. So long as you show that you are passionate about your business, you come with a solid business plan and you can make a personal guarantee, there’s a good chance you will be successful in getting your loan. You should know, though, that you must also be willing to invest some of your own money and be able to offer some form of collateral.
You Need Help to Grow
Perhaps you’ve started your business, and now you’re looking to grow it. However, you don’t quite have the funds to give yourself that extra boost. Whether you need a little extra working capital, inventory and supplies or equipment, a microloan can be the push you need to help your business expand, allowing you to become much more successful and profitable.
Just because you have been denied a traditional loan, does not mean that you are out of options. A microloan can be just what you need to get your business off the ground, or to get that extra bit of capital you need to grow. It is important to keep in mind that, although terms and conditions vary from lender to lender, microloans cannot be used for all of your financial needs. For instance, they cannot be used to pay off previously accumulated debt, nor can they be used to purchase property. With a bit of research into your microloan options and a well written business plan, you are well on your way to getting the money you need to help you meet all of your business dreams.