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Small Business Micro Loan: What You Need to Know

small business micro loan

If you own a relatively new business (under three years) or are looking to launch your start-up, finding cash to make your dreams of success come to fruition is probably one of your biggest challenges right now.

Conventional loans look for the one thing you don’t have; credit history. But luckily, there are other options that fit your needs and provide funding solutions to fuel your success.

Introducing Small Business Microloans

One solution for companies with bad credit are small business micro loans. These small loans are offered to fledgling businesses, typically at a reasonable interest rate for a short term of about six years or less.

This specific type of loan is designed to help small businesses get started and take those first important steps to financial success. They are offered through The Small Business Administration, alternative lenders, and certain nonprofit, community-based organizations.

What Can Micro Loans be Used For?

There are several things you should know before you move forward to apply. Micro Loans can be used for:

  • Working capital to keep your daily operations running
  • Purchasing inventory or supplies
  • Purchasing furniture or fixtures
  • Purchasing required machinery or equipment required for your business

It’s important to understand that not all lenders are created equal. Some will require more of you than others or have requirements that you may or may not be able to meet.

The SBA Micro Loan

According to the SBA, when you apply for their Micro Loan financing, you may be required to fulfill training or planning requirements before you even fill out an application for their consideration. This business training is created to help you launch or expand your business, but it may be more of an investment of your time than you anticipated.

The SBA does not loan you the money. They provide funds to specially designated intermediary lenders, basically, all non-profit community-based organizations with experience in lending as well as management and technical assistance. These organizations then administer the Micro Loan program to you if you are approved.

SBA Microloan Specifications:

  • The average SBA Micro Loan is only $13,000. They can be as much as $50,000 to help small businesses and certain not-for-profit childcare centers, but the amount of your loan is based on your business and needs. They typically examine your business and decide what to loan you, rather than you requesting what you need.
  • Each of these lenders has its own requirements and credit criteria. They usually will require some type of collateral as well as the personal guarantee of the business owner. A personal guarantee binds you above and beyond your collateral to repay the loan even if your business fails.
  • Proceeds from an SBA Micro Loan cannot be used to pay existing debts or to purchase real estate.
  • The loan terms will vary and are based upon the amount borrowed, your plans for the funds, the intermediary lender’s requirements and your timing needs. The maximum amount of time you have to repay the loan is six years.

According to businessfinance.com, Micro Loans can be easier to obtain than a traditional bank loan, but if you are not part of the non-profit lender’s town or community, you may not get approved easily. They tend to lend within their own neighborhood so many small businesses seek an easier alternative to getting a small business micro loan.

Micro Loans From Alternative Lenders

According to smallbusiness.chron.com, alternative lending is the where the majority of small business owners turn for faster, easier funding solutions.

These lenders can offer flexibility in their Micro Loan product regarding how you repay your loan, the length of the term and they typically have several options to choose from. Some even offer a payment plan that fluctuates, up or down, to match your sales volume.

Alternative Lender Specifications:

  • Alternative lenders typically have a straightforward, easy, one-page application that you can complete online.
  • The required documentation is usually very limited.
  • Collateral is not typically required. They base your loan on you and your business potential.
  • You receive approval quickly, in as little as a few days and do not have to meet any training requirements.
  • They create a repayment plan for you that is reasonable for your business to succeed.

For new businesses, the right microloan will pave the way to success. For modern business funding solutions, contact Credibly today!

Or to get started, complete our online pre-qualification form. Submitting is free and easy and won’t hurt your credit!