Some entrepreneurs can find it difficult to access small loans from banks and other mainstream financial institutions. The reasons are many.
The requirement for funds could be below the bank’s minimum loan amount.
Or the small business seeking a cash advance may not be in a position to offer collateral.
If a business owner faces this problem, what can he do?
That’s where microlending comes in.
In this post, we’ll examine what microlending is and how you can use it to your advantage. But before that, let’s spend a minute understanding the origin of the term.
What is Microlending?
Microlending and microloans came into prominence when Nobel Laureate Muhammed Yunus pioneered lending small amounts of cash to poor villagers to help lift them out of poverty. This practice is also referred to as microfinance.
However, the term microlending is now extensively used in America to refer to business loans than are smaller than the average.
Let’s see if you should use microloans to provide the cash you need for your business.
Is a Microloan a Good Idea for my Small Business?
Microlending involves a lender providing a small sum of money to an entrepreneur for their business.
One major provider of microloans is the U.S. Small Business Administration. The government agency’s microloan program provides loans of amounts up to $50,000 to small businesses. Loan applicants are required to approach specially designated intermediaries for the funds. Typically, the borrower needs to provide collateral to be eligible for SBA’s microloan program.
So, are SBA microloans right for your business?
Should you approach one of the approved SBA intermediaries in your area?
Or are there alternatives that will be a better fit for your business?
Let’s find out.
The first thing you must understand is that SBA microloans are for business owners who find it challenging to access capital from conventional sources. If you’re a startup or have limited experience in your chosen business, microlending may be a good fit.
An SBA microloan could get you a sum of $500 to $50,000.
But obtaining funds from an SBA microloan may be a time-consuming process, and you might not even be eligible, as the requirements are quite stringent (for example, you will need to have a good credit score). Also, take in mind that you may be required to put up collateral.
Camino Financial Microloans
Fortunately, the SBA is not the only source of microloans.
You could apply for a business microloan with Camino Financial. Our microloans are available for sums up to $75,000. To be eligible, you need to fulfill a few simple requirements:
|Microlending by Camino Financial – Eligibility requirements for a microloan|
|Your business should have been established for 9 months or more|
|Minimum annual sales of your business: $30,000|
|It’s necessary to provide a Social Security Number OR an ITIN|
|Don’t have a credit score or a credit history? You’re still eligible to apply|
|No collateral needed|
At Camino Financial, it’s our mission to help small businesses like yours. Our motto, “No business left behind,” guides our team members in their efforts to ensure that you can raise the money you need quickly and at the least possible cost.
5 Advantages of Microloans
Microlending carries several types of benefits. The primary advantage of a microloan is that it’s relatively easy to qualify for. Lenders target this financial product at business owners who find it difficult to get standard loans from the big banks and financial institutions.
There are several other advantages, too:
1. No need to provide collateral
Some financial institutions (but not all) that are active in microlending provide collateral-free microloans. For example, at Camino Financial, you don’t need to put up collateral in the form of your house or other fixed assets to be eligible for funds.
Keep in mind that, depending on the bank or financial institution you apply with, an SBA microloan may require collateral.
2. Small loans available
If your fund requirements are modest, microlending can provide an intelligent solution. Microloans are a better alternative than getting a bigger loan than what you actually need, that way you won’t have to pay interest on all that extra money.
SBA microloans are available for amounts as low as $500, although the average SBA microloan is closer to $13,000.
But on the flip side, there’s an upper limit as well. SBA microloans are capped at $50,000. Camino Financial’s microloans have an upper limit of $75,000. Other lenders have varying rules for their microlending programs.
3. Low cost compared to some other loans
While it’s true microloans can be expensive, they are far cheaper than some competing loan products.
Take, for instance, payday loans. These can carry an annual interest cost of up to 200% to 300%. Microloans are a far cheaper alternative.
4. Free advice on running your business
Many entrepreneurs need help with specific business issues. At these times, you could turn to a friend or business associate. Sometimes, you may need to hire a consultant.
But there’s another option as well. SBA provides its designated intermediaries (the financial institutions approved to advance this product) with grants to provide training and technical assistance to microborrowers.
Camino Financial also has a very successful 1-on-1 business consultation program for members. This is because we care about your business and we want to help you strengthen it.
5. Entrepreneurs without a credit history could be eligible for a microloan
This a distinct advantage that microlending carries. Some lenders, including Camino Financial, encourage entrepreneurs without a credit history to apply.
If you want to apply for an SBA microloan, this won’t be the case. As we mentioned, they have very stringent requirements, and they ask for a minimum credit score of around 620-640.
How to Use a Microloan
Here’s a list of ways you can put the cash you get from a microloan to use:
- Buy inventory: A supplier could be offering a significant discount. Or you may need to stock up for the holiday season. You can use a microloan to meet your need for the extra cash you will require in situations like these.
- Purchase fixed assets: You can use the funds you borrow to buy new machinery or equipment.
- Pay wages: It’s perfectly okay to use the money from a microloan to meet employee expenses.
- Repair and maintenance costs: Your old machinery or equipment may need refurbishing or routine maintenance. This is a legitimate business expense, and you can pay for it with your microloan money.
- Expanding business operations or a new marketing campaign: Small businesses could require funds to open at a new location or extra money to promote their goods and services.
The money you raise from a microloan should be used in your business. Lenders don’t allow the funds to be deployed for personal expenses.
Finance Your Business With a Microloan
Although microloans provide small amounts of capital, they can make a world of difference to entrepreneurs who need cash to boost business volumes.
Consider the story of Celso, a Camino Financial member. He needed funds to renovate and expand his restaurant business. This would help him attract new customers and improve his revenue.
See what he has to say about the microloan he received from us:
Thanks to the loan, we have not only created a dance floor for people to enjoy… we have even created job opportunities for chefs, servers, and security guards.
The expansion he was able to afford thanks to the microloan helped him grow and strengthen his business, but it also gave him the tools to support his community, because he promotes the work of young artists, which serves as a relief to street crime. Celso is not only a successful business owner but a role model.
Apply for a business microloan and get access to funds to expand your business and take it to the next level, just like Celso did. Our motto, “No business left behind,” ensures that we’ll do our utmost to ensure you get the funds you need at the best possible terms.