How micro loans work and getting around them

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A microloan is a low-interest short-term financing tool provided by small-business-friendly lending organizations such as banks or credit unions that work with the U.S. Small Business Administration (SBA). Microloans often range between $5,000 and $50,000 and can be used by small businesses for several purposes, including payment for inventory, machines, office and business supplies and equipment, working capital. A microloan can be particularly helpful for businesses that do not have a credit record or do not qualify for a loan from a bank.

Where to Get an SBA Microloan

One of the major aspects of knowing how micro loans work is to know where to get the loan. There are several g institutions and non-profit organizations helping businesses to secure microloans across the nation. Therefore, business owners are advised to carefully select the most suitable loan provider for their business. Microloan lenders work with the SBA to provide flexible and low-interest loans to small businesses.

Why a Business May Need a Microloan

Several businesses have been turned down by banks when applying for a loan. Therefore, microloans come as a savior to such businesses. Some of the reasons for opting for a microloan include inadequate collateral, inadequate cashflow, bad credit history or credit score, and a relatively small loan amount.

How does a microloan work?

A microloan is often used by early-stage startup businesses or other small businesses that need more working capital to fulfill operational expenses. Here is a summary of how microloans work 

  • Find a microloan provider approved by the SBA

  • Do some research to ensure their business nature and background to ensure their suitability

  • Apply for a loan


Factors considered by lenders before providing a microloan

  • How long the business has been in operation

  • The amount requested

  • The location of the business

  • Financial track record

  • Estimated likelihood that the borrower will be able to repay the loan within the given time frame

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