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Are Microloans Right for You?

When figuring out small business financing for your small business, consider how much money you truly need. If it is not that much, consider the possibility of a microloan.

So what exactly is a microloan?
The Microloan Program was developed in 1992 by the SBA for the purposes of making available very small loans to business owners who need small business loans. Nonprofit intermediaries are used to make the loans. Currently, 170 nonprofit organizations are administering the Microloan Program, in almost every state. Since 1992, the Microloan Program has handed out over 12,000 loans, totaling a whopping $112 million. The funds of a microloan can be used for many business needs, including capital, inventory, supplies, and equipment.
Who needs it?
Microloans are best for startup companies that do not require as much capital and equipment. The nonprofit intermediaries who contribute to the Microloan Program are generally very knowledgeable about small businesses, and this could work to the benefit of new small business owners.
The rate of a microloan is negotiable with the intermediary in question, but rates tend to be higher than those for standard small business loans.
How easy is it to qualify?
Businesses who have never borrowed money from a bank or credit union—or have never qualified for such loans—might find more success with the Microloan Program, especially because many banks are reluctant to provide loans that are so small. However, one of the difficulties in obtaining a microloan is due to the nonprofit intermediary distribution system. The nonprofit organizations tend to lend to the businesses located in the region in which they operate, so if there is no such organization near you, microloans may be hard to come by.
Range of Funds Available?
The range of microloans given out can be less than $100 to a maximum of $35,000. The average size of a microloan is $10,500. The maximum term of a microloan is six years.
Bottom Line
In summary, the Microloan Program can give small businesses or start-up businesses a small boost of cash. Unlike many other lenders, including banks and credit unions, the nonprofit intermediaries who contribute to the Microloan Program are comfortable with lending to inexperienced business owners and are flexible in their negotiations. If you only need a bit of money to get your business running, the Microloan Program is an option to consider.
This article was originally published by Biz2Credit
This article was submitted by Megan Zhang, freelance blogger and writer. She lives in New York City.
Published: September 19, 2013

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