While managing a small business, even getting a little money can make the difference between having your operations runs smoothly or not. Getting quick and little for especially from traditional lenders is very difficult. Fortunately, there are alternative lenders available that can help small business owners like you with microloans.

If you’re tight on cash and a quick influx of capital, read here to learn everything you need to know about microloans and how they’re the right solution for your small business.

What Is Microlending?

Microlending is a form of small business financing that provides loans of small amounts from $5000 to $50,000 to typically young entrepreneurs to boost self-sustenance and help start a business. A microloan can help your small business especially when you don’t have a credit history or otherwise unable to qualify for a bank loan. The application process is easy with, where you apply, get approval and funding within a few days.

A microloan is designed to meet smaller, short-term capital needs of a business. Some microlenders also offer lower amounts with quick repayment terms. You can repay a microloan immediately and without a prepayment penalty. Some microlenders might charge a high-interest rate for the loan, but you will owe less overall since you’re repaying it earlier.

How Does Microlending Work?

Microloans work similarly to other small business loans, where you borrow money and repay it over time, plus interest. You can make loan payments in weekly, biweekly, or monthly schedule, depending on your lender.

Microloans Qualification Requirement

In order to qualify for microloans, you should be operating for at least a year and is generating revenue. With a more flexible and simpler approval process, you can easily qualify for microloans even if you’ve been disapproved for a traditional loan. The eligibility requirements vary by lenders, but the typical standards are as follows:

  • You need to have a proof of the revenue on terms of several months of bank statements
  • Most financing options require you to have a good credit score to qualify for lower interest rates, but with microloans, you can get approval even with bad or no credit. By repaying your microloan, you can build your credit score so you can qualify for other financing options in the future.
  • If you can also provide a solid business plan along with your financial statements, your chances of getting quick loan approvals with increase. However, it’s not a requirement but will demonstrate to the lenders that you have a plan for the loan repayment and is serious about your debt management.
  • Before applying for microloans, make sure they are not industry-specific and targeted for specific geographic areas (some microlenders may require).

What Businesses Type Can Use Microloans?

Every type of small business can use microloans; however, they are more appealing to:

  • Startups and new businesses
  • Small businesses that need smaller loan amounts
  • Small businesses with poor or no credit history
  • Small businesses that want to build credit for future financing
  • Business owners who haven’t been able to get approved for a traditional bank loan
  • Low-income borrowers and underrepresented groups like minorities or female business owners
  • Sole proprietors and freelancers

Where to Get Microloans?

Traditional lenders don’t provide microloans to small businesses. There are other options where you can secure microloans:

  • The Small Business Administration (SBA) – The SBA is a government organization that provides microloans to small businesses up to $50,000 to help them expand and grow. The eligibility requirements vary by lenders but some intermediaries require collateral and the personal guarantee of the business owner. You can use SBA microloans for a variety of purposes including working capital, inventory purchases, furniture or fixtures and equipment purchases. You cannot use SBA microloans to repay existing debts or to purchase real estate for your small business.
  • Alternative Lenders – Alternative and online lenders provide microloans to small businesses with an easy and quick application process. To qualify for microloans from alternative lenders, you just have to provide proof of business revenue, and you’ll be quickly approved for funding in as little as 24 hours.
  • Nonprofits and Community Organizations– There are many non-profit and community organizations that support belittled groups in the small business community such as minorities, veterans, and female entrepreneurs. If you are in one of these underrepresented groups, you can get microloans from them.

Microloans Application Process

To make the lending process simple and quick, most microlenders handle the loan process remotely. You just have to fill an online loan application form and provide details like your industry type, time in business and your annual revenue details. You also need to provide necessary paperwork including your bank statements, your business plan and a credit report (not every lender will ask for these). You may need to call the loan specialist to discuss how you will use the loan and answer some business-related questions. Once approved, you can have the funds in your business bank account within a few business days. Simple process and quick funding are the key benefits of a small business microloan as compare to a traditional loan.

Use of Microloans

You can use a microloan for short-term capital needs like:

  • To restock inventory
  • To use working capital during a cash crunch
  • To cover payroll
  • To pay for emergency expenses or repairs
  • To purchase equipment or machinery

The Bottom Line

Applying for microlending could keep your small business steady through the natural ebbs ab flows of your business cycle. A small amount of money at the right time can reap big rewards for your small business. At Merchant Advisors, we strive to provide small business loan programs you need instantly, so you can focus on what’s important to you — your small business. Apply for a microloan up to $500,000, with terms starting from 6 months, and rates starting at just 4.99%—making it as flexible and economical as possible. Apply today and help your small business succeed today!

Small Business Financing News │ Merchant Advisors | blog
Everything You Need to Know About Small Business Microloans
Everything You Need to Know About Small Business Microloans
Looking for funding to fund your small business? The road ahead is full of twists and turns because it does require a lot of time and research to locate the best funding program that suits your business. Due to theRead more
Learn about small business microloans, along with the qualification criteria, how it works, how to use them, and from where you can apply for microloans.
Merchant Advisors
Merchant Advisors