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Why Micro Loans Could Be The Answer to Many Small Business Owners Financing Needs

Guest post by: Karlene Sinclair-Robinson

Article Overview: Small business owners, if you have never considered accessing a Micro Loan, you might want to take a look at this viable financing option. Some of you might think that these types of loans are used only in Third World countries. Perhaps you have heard of lending sites such as Kiva.org, which primarily finances individuals living in countries other than the United States who are starting their own businesses.

Why Micro Loans Could Be The Answer to Many Small Business Owners Financing Needs

Small business owners, if you have never considered accessing a Micro Loan, you might want to take a look at this viable financing option. Some of you might think that these types of loans are used only in Third World countries. Perhaps you have heard of lending sites such as Kiva, which primarily finances individuals living in countries other than the United States who are starting their own businesses.

Micro Loan financing is one of the best small business financing options available in today’s tight lending climate. This type of financing has been around for many years. Micro Lenders have finance entrepreneurs to the tune of billions of dollars worldwide. There are many other financing options available, but this type of financing has survived the recent financial storm and continues to grow exponentially.

To know if a Micro Loan is a good fit for you, first, determine if a small loan amount is adequate for your business. Next, consider the criteria you must meet to be approved for a Micro Loan. There are many types of Micro Lenders and they all have different processes in place to either approve or decline your loan request

The answers to the questions below will help to determine if a Micro Loan is right for you:

• Why should I use a Micro Loan? Large numbers of Micro Loan requests have continued to be approved since the financial crisis hit in 2008. Prior to the economic downturn, lenders would typically take two to three weeks to approve a loan request. Since 2010, traditional loan approvals have taken as long as ten (10) weeks or more. Many Micro Loans are now being approved in six (6) to eight (8) weeks. This time-line is, of course, based on factors that must be taken into consideration on a per client basis.

• Where do I access a Micro Loan? These loans are available through local, regional, national, and international sources. These sources have their own guidelines for approving loans. Some of these lenders are privately held “for-profit” companies, while others are “nonprofit” or “not-for-profit” organizations.

• What do I need to access a Micro Loan? The lender will require such documents as your credit report, itemized “Use of Funds” list, cash flow statements, bank statements, and any other document the lender deems necessary for them to feel comfortable in approving your loan request.

• How do I qualify for a Micro Loan? You will qualify for a loan based on the requirements of the Micro Loan lender you use. These lenders will request enough documentation, collateral, and other information to make them comfortable with the risk they are taking to loan you money.

• Does my type of business fit this loan option? Each Micro Loan lender sets their industry specific requirements. You’ll need to determine if the source you’re working with will finance your type of business. If you don’t know your industry category, check the NAICS codes system (North American Industry Classification System) at Census dot Gov's website.

Many of you may have tried unsuccessfully to get loans from traditional financing sources such as banks. Perhaps your lender did not explain clearly why you failed to qualify for a business loan. Maybe you did not prepare well for traditional financing. For example, if your credit score was too low, or you didn’t have sufficient collateral to offset the risk associated with the loan amount you requested.

If this is the case, a Micro Loan could potentially improve your financial situation. This loan option is a great way to get your business moving quickly. You can access this type of financing based on a number of factors.

Micro Loan Factors to Consider:

• Start-ups (less than 2 years in business) – $15,000 to $25,000 loans available

• Seasoned businesses (more than 2 years in business) – $35,000 to $50,000 loans available

• Loans use available collateral such as equipment, vehicle(s), jewelry, etc.

• Loan approval time-line – 6weeks to 10weeks or more (per lender)

• Some lenders lend nationwide, while others finance regionally or locally

• Types of industries – All types included with restrictions in the construction and medical industries

If Micro-Loan financing fits your small business needs, then by all means use it to grow your business or help stabilize it. Remember, it’s a loan option you can use and reuse in shorter periods of time when compared to repaying a loan for a larger amount. Be sure to prepare effectively for this or any other financing option so you can qualify and get the working capital you need.

If you don’t know where to look for Micro Loan sources, check with your local Small Business Development Center, Women’s Business Center, Small Business Technical Center, local Chamber of Commerce, or via this website's Contact Page.

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Article Tags: business owner, business owners, entrepreneur, entrepreneurs, finance, finances, financing, funding, karlene sinclairrobinson, micro loan, microloan, microloan financing, microloan lender, microloan lenders, microloans, SBA, small business, small business owner, small business owners, small business trends, start up



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Micro Loans - That's interesting Russell. The following is more information on Micro Loans and anyone within the USA who would like a list of Micro Loan Lenders (listed by State) I have that information! Just let me know and i'll get it out to you in my spare time. The Microloan Program provides very small loans to start-up, newly established, or growing small business concerns. Under this program, SBA makes funds available to nonprofit community based lenders (intermediaries) which, in turn, make loans to eligible borrowers in amounts up to a maximum of $35,000. The average loan size is about $13,000. Applications are submitted to the local intermediary and all credit decisions are made on the local level. Terms, Interest Rates, and Fees: The maximum term allowed for a microloan is six years. However, loan terms vary according to the size of the loan, the planned use of funds, the requirements of the intermediary lender, and the needs of the small business borrower. The maximum loan amount is $35,000, however, the average loan amount is around $13,000. Interest rates vary, depending upon the intermediary lender and costs to the intermediary from the U.S. Treasury. Generally these rates will be between 8 eight percent and thirteen percent. Collateral Each intermediary lender has its own lending and credit requirements. However, business owners contemplating application for a microloan should be aware that intermediaries will generally require some type of collateral, and the personal guarantee of the business owner. Technical Assistance Each intermediary is required to provide business based training and technical assistance to its microborrowers. Individuals and small businesses applying for microloan financing may be required to fulfill training and/or planning requirements before a loan application is considered. How to Apply: Small businesses that are interested in applying for a microloan should contact a microlender in their area.


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