Microloan – An Explanation

The economy may be tough, yet that doesn’t stop people like you from having dreams. If you’re looking for a hand in starting your small business, a microloan may be the answer you’ve been looking for. This article explores what a microloan is, who qualifies for microloans and how to get one. Let’s get started!

A microloan is a small loan, usually given to those who are at or below the poverty level and are looking to start a business. Quite often, the people who qualify for and receive a microloan are unable to put up collateral or qualify for a traditional small business loan because they lack a steady employment record and don’t have a verifiable credit history.

Microloans started to gain in popularity when organizations popped up to help aspiring entrepreneurs in impoverished countries. The program works quite well, particularly with female entrepreneurs, and has grown exponentially, spurring what is also known as peer-to-peer lending. Peer-to-peer lending is exactly what it sounds like – organizations collect money from donations and interested contributors, sometimes family and friends, and extends small loans to qualified applicants.

Microloans are available through your local small business association. However, before you apply there are a few things to know.

* Small business loans vary in size. The maximum loan amount is $35,000 and according to the Small Business Association, the average loan is about $13,000.

* You can use a microloan for working capital. You can also use it to buy supplies, furniture and equipment. You cannot use it to pay for debt already incurred, or to buy real estate.

* Interest rates for microloans run between 8 and 13 percent depending on the intermediary and lender costs and other loan terms.

* Loan terms depend largely on the size of the loan and the planned use for it. The maximum term for the loan, the amount of time you have to pay it back, is six years.

* Generally, some sort of collateral is required for microloans. However, this isn’t always necessary and depends largely on the loan application.

If you’re interested in applying for a microloan, the steps are fairly straightforward. Visit the small business administration online and look up microloans. From that page you’ll want to find your local small business microloan intermediary. They’re listed by state. Contact your intermediary and begin the application process. Each process will vary slightly but will operate like a standard loan application process.

When it comes to starting a business, if you believe in yourself and in your business idea, nothing should stop you, not even a lack of funds. Find out if you qualify for a microloan today and get started living your dreams.

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