Serving business owners since 2007One of the most essential tasks for any small business startup is finding adequate funding. Microloans are a relatively new and novel way for entrepreneurs to secure much-needed financing. Raising capital for your business is challenging enough, but entrepreneurs with low incomes, no collateral and rocky credit histories often find they do not meet the criteria for business loans from a bank.
The only other options these entrepreneurs may have are high-interest credit cards and predatory lending – two options it’s best to avoid. Microloans provide a workable financing solution for many entrepreneurs who would otherwise struggle to start their venture.
Funds from a microloan can be used to launch a business, buy inventory or capital equipment, hire employees, and complete other important business-related tasks. Each lending institution establishes loan terms and what the funds are to be used for.
Loans range from as low as $500 to as high as $50,000. Repayment generally takes no longer than 5 to 6 years, and rates are determined by the specific lender.
Microcredit is a form of borrowing that has exploded worldwide in the last decade—and it’s becoming more popular in the United States as well. The credit crunch that began in 2008 has made it even tougher to borrow through traditional means, leaving many entrepreneurs scrambling for financing.
What is the difference between a loan and a microloan?
While they both fund companies in need, a few key differences exist between microloans and loans.
A microloan’s primary use is to start a business. It helps people who don’t qualify for or need big loans. Microloans have more straightforward rules and lower interests, making it easier for small companies to pay them back reliably.
Regular loans involve more money and have stricter rules regarding who can apply and what companies can use them for. They are typically for larger businesses that need more funding.
Can microloans be used to start a small business?
Yes, many small businesses start with microloans. They use the money to buy supplies or equipment and expand the business.
Here are some well-known businesses that found their startup success using various types of loans, including microloans and loans from friends and family:
- Ben & Jerry’s started with a $4,000 microloan as part of their total $12,000 investment. They used the money to buy an old gas station, which they could then turn into an ice cream shop. The company has become a highly successful ice cream brand in the United States.
- Subway is a very popular fast-food sandwich shop. The company’s original funding came from a $1,000 loan from a family friend to help open the first store.
- Tom’s of Maine, known for its natural personal care products, started with a small $5,000 loan to get off the ground. This loan allowed them to produce and distribute their first products.
- Media.net is an advertising company that specializes in targeted ads. The company’s founders created it thanks to the help of a $500 loan from the founders’ father. This loan was vital in helping them rent an online server for their business.
Who is eligible for microloans?
Small business owners, entrepreneurs, and people who can’t get regular loans are often eligible for microloans.
New businesses and those with low credit scores can apply for a small, easy-to-manage loan. The exact requirements for microloans will vary between lenders, so be sure to view the terms and conditions before applying.
Where can I apply for a microloan?
Now available in the United States, a microloan is one way to incorporate your business and get it off the ground.
Below are some popular organizations that offer microloans:
Small Business Administration Microloan Program
The SBA Microloan Program makes small loans to start-ups or growing small businesses. Funds from SBA are made available to community development organizations or intermediaries, who then make loans to eligible borrowers. The SBA makes all of its decisions and processing at the local level.
Contact an SBA intermediary in your area for more information.
Kiva.org
Kiva.org is a nonprofit, private organization that has started offering microloans in the U.S. Through its website, individuals provide relatively small amounts of financial capital directly to entrepreneurs. Donors can track who their money goes to, what they’re using it for, and their repayment progress.
Accion Opportunity Fund
The Accion Opportunity Fund (AOF) extends microloans and provides other financial services to entrepreneurs in the United States. AOF offers business coaching programs and resources to small businesses to help them further their success. This organization also assists those not qualifying for their loans by recommending other partners and resources.
Grameen America
Grameen America is a nonprofit microloan lender that focuses on women entrepreneurs. It emphasizes the importance of business equality and supports women in business ventures by offering small loans to start or grow businesses. Grameen America also provides financial training to help women succeed with business operations.
LiftFund
LiftFund partners with many organizations to support and offer loans to people who can’t get them from banks. It also provides free consultation services to help people learn how to run their businesses better.
These and various other microloan programs help aspiring, enterprising people worldwide start ventures and earn a living.
As loans are repaid, funds are lent to other low-income entrepreneurs. While microloans are not a silver bullet for solving poverty, they can be extremely helpful to those who may have no other option.
About MaxFilings
Business owners can incorporate online with MaxFilings. Form an LLC or corporation online in 10 minutes or less, or organize your information until they are ready.
MaxFilings offers free access to an extensive online incorporation library along with other business services.
Additionally, newly incorporated businesses have access to online promotional services such as PR, websites, and SEO services through the partner company, SEO Advantage, Inc.
