What you need to know about microcredit for small businesses
Need a small business loan fast to start or grow your business? Whatever your reasons for taking out a quick loan, not all small business loans are created equal. Some of them have strict credit rating and documentation requirements, others have high-interest rates, and others are government-guaranteed, long-term loans that allow for lower interest rates. There are multiple channels through which small business owners can borrow, and choosing can get confusing. Microloans are small business loans, typically offered for up to $35,000. However, some lenders allow microloans up to $50,000. Microcredit is typically used for seed capital but is sometimes given to start-up small businesses for working capital.
Microcredit can be used for many purposes including buying equipment, inventory, machinery, fixtures, furniture, and supplies and even buying another business.
Does the SBA issue microcredit?
No. Small Business Administration SBA Microloan does not lend money to companies or individuals. However, the SBA has many programs that allow small businesses to apply for loans and other business assistance. The SBA does provide funding to certain non-profit lenders, and these lenders then make microloans to small businesses, usually within their communities.
What are the general terms and conditions?
Every microcredit lender has their microcredit repayment requirements. In general, the maximum term for microcredit is six years, but interest rate and collateral requirements vary significantly between micro lenders. Most micro lenders require a personal guarantee from at least one of the business owners. Microcredit used to be relatively easy to obtain compared to traditional bank credit. However, given the downturn in the US economy in 2008, microcredit may be more difficult to obtain.
Microcredit obtained through SBA-backed or other related programs typically require the applicant to meet certain distinct business training and planning requirements before a business owner can apply for a microcredit.
Where can I find an SBA partner micro lender?
You can find SBA 7A Loans partner micro lenders in the US Currently, 46 states have SBA partner micro lenders as well as the District of Columbia and Puerto Rico. You can find a list of micro lenders in your state On the SBA website. Are there other lenders not affiliated with the SBA that provide microcredit? Yes. Here are some places where you can check in:
Kiva: A website that provides person-to-person microcredit to entrepreneurs in other countries. With Kiva, you can lend as little as $25 to help individuals start small businesses in other countries. To date, Kiva donors have lent more than $7.7 million to small businesses.
Opportunity Fund: Nonprofit micro lender that offers a variety of microloans and small business loans that can be used for working capital, equipment purchases, remodeling, and other business development expenses.
Accion USA: For existing businesses, Accion loans range from $500 to $50,000. These loans are typically used for working capital, operating expenses, vehicle purchases, inventory purchases, equipment purchases, relocation, and marketing.
Local business development organizations also provide microloans to local community members. Call your local municipality or chamber of commerce and ask for information about microcredit lenders in your area.
Is it difficult to qualify for a microcredit?
Your ability to qualify for a loan depends on your individual financial situation and credit rating, as well as the unique qualification requirements of different lenders. However, there are some things you can do to improve your chances of getting a business loan approval. When you apply for a business loan, you have a professional business plan. Be prepared to be asked about your business experience and ability to start and run a successful business. You may be asked about your education, special skills, and work experience and qualifications to reassure the lender that you know what you’re in for.
You should also be ready to show what you have already personally invested in the business. Investors may believe in your business idea more if you’ve already made sacrifices to achieve your dreams. Bring financial information with you to the lender; including budgets, a balance sheet, and any other documentation you need to show past performance and working capital.
Can I use a microcredit for business purposes?
No. Lenders want to know exactly what you intend to do with the loan and usually place restrictions on how the money is used. Before making a formal request, ask any questions you might be able to borrow money for and how much you can borrow for. Show that you’ve done your homework and can be trusted and may only get the credit you need to start the business of your dreams.