If you don’t think you’ll qualify for small business funding, try applying for a microloan offered by non-profit companies and geared toward local businesses.
Technically, a microloan is part of the SBA Microloans Program, which helps small businesses get relatively small loans. Unlike many other types of providers, microlenders are usually non-profit companies and work in specific communities. The time it takes to get funded through a microloan can be longer than other funding options, but the interest rate is usually much lower. If you have the time to wait for a microloan, it’s definitely a viable option for funding, especially when you don’t qualify for other funding options.
The average size of a microloan is $13,000, but it can be up to $50,000. The interest rate for a microloan tends to be around 8-percent to 13-percent. Microloans can be used toward inventory or supplies, working capital, machinery or equipment, or furniture or fixtures. They can’t be used to purchase real estate or pay off existing debt.
It usually takes about one to two months to get your microloan funds after you apply. That’s a little longer than with other funding types of this size. One of the benefits, though, is that businesses unable to secure traditional small business funding may be approved for a microloan. This is because microloans are offered by non-profit organizations that focus on businesses that are credit challenged, minority-owned, or women-owned. Also, businesses that don’t have the financial history to qualify for traditional funding may be approved for a microloan.
To be approved for a microloan, you will likely need to offer some kind of collateral. The maximum loan term for a microloan is six years. If you’re interested in an SBA microloan, you can start the application process or get more information through your SBA District Office.
Besides the low interest rates, one of the biggest advantages of a microloan is that you get more than money – the non-profit company will also train you and offer technical assistance to help you grow your company. This is an advantage because microloan organizations can offer valuable business management assistance. They can help you learn how to start or expand your business. Depending on the microloan intermediary lender, this training may be a requirement for your loan.
To be approved for a microloan, you may be required to offer some kind of collateral. It’s always risky to secure a business loan with your personal property.
Microloans are offered by SBA approved intermediaries. Every year these non-profit organizations lend to small businesses that may have had trouble getting a low interest loan elsewhere. You can head over to SBA.gov for a complete list of intermediaries in your area.