With more and more small businesses launching every day, many entrepreneurs and business owners are finding it increasingly hard to secure financing. This is where microloans come in handy; they are typically provided by non-profits and CDFIs (Community Development Financial Institutions) to provide an efficient, flexible, and fast source of capital to help you get started.
Today, we’re going to discuss everything you need to know about a business microloan, including what is it and how it can help to boost your start-up.
What Is a Business Microloan?
A microloan or microfinance can be described as a small business loan that is generally no more than $50,000. They’re perfect for companies who need a quick injection of cash to get their new business off the ground, or even to expand an existing business. Microlenders offer financial assistance to 250,000 to 300,000 small businesses each year.
How Do Microloans Differ from Traditional Business Loans?
When it comes to traditional business loans (such as long-term loans or secured loans), a microloan differs in several ways. Firstly, the funds are usually obtained from an alternative lender such as a nonprofit or CDFI. Secondly, the lender will often work closely with the business owner, sometimes offering them mentoring, training or technical assistance to grow their business. Lastly, a microloan is usually easier and quicker to apply for than a traditional loan due to the limited size of the loan. Lenders are less concerned with an applicant’s credit score and more interested in the business model and assisting the business financially.
There’s a number of ways that a microloan can boost your small business.
Cover Day-to-Day Expenses
Without sufficient working capital on-hand to manage your business, how can you expect to get ahead? A microloan can boost your working capital, helping you to not only manage the costs of running your business, but also those unexpected costs that arise from time-to-time.
Buy New Equipment or Machinery
It’s inevitable that every business will need to purchase new equipment or machinery at one stage or another, whether it’s a cash register, kitchen equipment, machinery for production, etc. All of these things can be costly, but thankfully, microfinance can lend a helping hand.
Moving to a Larger Premise
Many start-ups begin in the founder’s living room or garage, so it comes as no surprise that as your business grows, you’ll want to branch out to a larger office space. Whether you’re leasing or purchasing the new premise, a microloan can still provide you with the cash safety net you need.
Cover Seasonal Changes
Depending on the type of business you’re running, you may experience a dramatic rise in sales at a particular time in the year (like Christmas), only to fall completely flat during your peak season because you don’t have the resources to purchase enough inventory or hire extra workers. This fluctuation in cash flow can really hurt your business, as you’ll struggle to make ends meet financially. That is, of course, unless you seek additional finance through a business microloan.
If business is good, but you want to boost it even further, you’ll need to hire more employees. Not only does this allow you to handle more customers, clients, and sales, but it also frees up time for you to focus on important managerial tasks. With hiring new employees, however, comes the need to pay staff wages – something that can quickly sink a business if you don’t have enough funds on-hand.
How Can You Apply for a Business Microloan?
If you’re looking to gain up to $50,000 in finance for your start-up or small business, you’re in luck. The SBA has a list of certified microlenders on their website, breaking each one down by location and providing necessary contact information. Just ensure you meet their specific requirements before taking the time to apply for the microloan.
Now that you know everything about a business microloan, as well as how one can boost your start-up, you’re well on your way to small business success. Best of luck on your entrepreneurial journey!
About the Author: Melanie Doncas is a content writer for Lumi, an Australian fintech specialising in small business loans. She is passionate about helping SMEs, entrepreneurs, and start-ups to grow their business.