If you’re on the hunt for ways to fund your small business, you might’ve come across something called microlending.
But what is microlending anyway?
Here you’ll get the the lowdown on what microlending is all about, plus how to decide whether you should apply.
Microlending: What is it for?
As the name implies, microlending refers to loans smaller than $50,000.
Besides the size of microloans falling under a certain cap, microlending activities are frequently most popular among nonprofit lenders.
That’s right, these lenders are not out to make a quick buck.
Instead, they lend money with a mission in mind.
While funds are limited, they’re usually allotted specifically for minority business owners or social enterprises serving underserved communities and creating local jobs.
Learn more about Minority Business Loans
Why choose microlending?
If you don’t need a lot of borrowed capital to get started, then microlending could serve your funding needs perfectly.
Microloans are oftentimes reserved for those with low cash reserves or poor credit.
What are some advantages to microlending?
In addition, if you or your business is aligned with the nonprofit mission, then that microlender would be that much more motivated to work with you.
Non-profits that offer microloans may also provide their borrowers with free consulting, resources, and training for small businesses.
And while credit scores are looked at during the application process, microlenders approach borrowing with the big picture in mind.
So if your small business has a strong vision and goals to make an impact locally or globally, the microlender will definitely take that into consideration.
What are some of the downsides to microlending?
Microloans tend to have a higher interest rate than a loan you would get from a traditional lender such as a bank.
Further, because microlending is most common among nonprofits, microloans are limited in number and not always easy to find.
3 Top Sources for Microlending
SBA Microloan Program
The Small Business Association’s (SBA) Microloan Program extends loans to small businesses up to $50,000, though realistically the average SBA loan amount is closer to $13,000.
Microfinancing can be used toward working capital, furniture, inventory, and equipment.
How it works is that the SBA doles out funds to nonprofit community-based organizations that serve as intermediary lenders.
Each lender has its own lending criteria for credit requirements, while microlending interest rates generally range anywhere from 8 to 13 percent.
Learn more about Microloans Through the SBA
LiftFund
LiftFund is a non-profit that offers microloans to 13 states in the U.S.
Loan amounts range from $500 to $1 million, and according to LiftFund’s site, the credit score of the average borrower is 575.
Since its inception in 1994, LiftFund has granted loans to 117,000 businesses totaling more than $210 million.
Grameen America
Grameen America is an international organization that helps low-income women start businesses in their communities and build better lives.
To date, Grameen has loaned over half a billion dollars, and the average loan amount is $1,500.
Each female business owner who receives a loan also undergoes a week of financial training.
Learn more about Loans for Women
With its focus on social enterprise and less stringent credit requirements, microlending could be the perfect solution to your cash flow problems.
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