Are you searching for a low-cost small business loan? Many entrepreneurs’ first instinct is to speak with a bank or other traditional lender. Microloans are small, short-term loans with a low-interest rate that a lender extends to self-employed individuals and business startups with low capital needs. Microlending typically falls between $500 and $50,000.
After the Great Recession, banks significantly tightened their lending standards. To this day, big banks tend to only extend large loans to big businesses to reduce the risk involved for the financial institution. The result has been a huge hit to small business lending. Because of this struggle, alternative lenders began to step in to offer cash solutions that entrepreneurs could quickly access and put to use in growing their business.
With an alternative lender, businesses can easily fill out and submit and application in a matter of minutes. A traditional lender, on the other hand, involves a lengthy application process with endless documentation requirements. An alternative lender will also give approval and provide funds in as little as 24 hours; banks can make businesses wait weeks or months to hear an answer.
The biggest attraction for small businesses? They are able to secure the amount they really need through an alternative business loan. An amount they can use to grow their business, but not so much that they are overwhelmed with debt. The most common reasons business owners choose microloans include: buying new equipment, expanding their marketing program, increasing inventory, etc.
The Biggest Benefits of Microloans
- Their Design. The microloan market has evolved over the past few years, with this loan option designed to fill the gap created after banks pull back from providing small business loans. Thus, microloans are specifically designed to fulfill the needs and situation of small businesses.
- Their Flexibility. One of the most appealing benefits of microloans is there flexibility. They allow small businesses to grow at their own pace, and the smaller amount is safer than one big loan the business owner is unsure if they will be able to payback.
- Their Size. As mentioned previously, business owners can apply for the amount their business really You may need a $35,000 microloan to cover the costs of growth, while another entrepreneur only needs $10,000 for startup costs. A microloan allows your business to stretch income and create the ability to grow, without borrowing more than you can pay back.
- Their Impact on Credit. Using a microloan also helps business owners build or rebuild their credit score. You can borrow the small amount you need, and then pay it back. Over time, you will build your credit history for future endeavors.
Author Bio: As an account executive, Michael Hollis has funded millions by using alternative funding solutions. His experience and extensive knowledge of the industry has become a true asset for First American Merchant.