How to Get a Microloan
Do you need just a little bit of money to get your business going or take it to the next level? If so, microloans might be the right financing option for you. Here's how to get a microloan.
Microloans can be a great financing option for businesses that can't secure financing through traditional commercial lending avenues.
In the US, microloans are available from a variety of sources. But some of the most common sources of microfinancing are government-backed programs that offer loans for small or disadvantaged startups.
Applying for a micro-loan is a relatively straightforward process. Each lender has different lending requirements. However, most micro lenders–including government-backed lenders—have a similar application process and program structure.
- Learn about microlending. It's not a formal requirement, but before you start the application process you should spend some time learning about the differences between microlending and traditional lending. There are some significant variations involved with this form of financing, including the expectation of a substantially higher level of transparency.
- Identify a microlender. After you've done your research, the next step is to identify a microlender that is right for your company. The best place to begin your search is with your state's microloans program. Visit your state website for contact information and program guidelines.
- Determine eligibility. Not all businesses qualify for microloans. Before you invest time and energy filling out an application and pursuing your options, have a conversation with a state microloan representative to determine your eligibility.
- Complete an application. Your microlender will send you an application packet after you've determined that your business qualifies for microfinancing. You should expect the application to contain the kinds of materials you would be expected to fill out with a traditional commercial lender. For startups, most microlenders require a viable business plan and one year of cash flow projections.
- Fulfill microloans obligations. Your microlender will contact you when your loan has been approved. You will also be informed about the requirements that you will be expected to fulfill throughout the term of the loan. It's not uncommon for microlenders to require their borrowers to submit regular updates via online journals or other reporting mechanisms. Make sure you understand your lenders requirements and meet all of your loan obligations on time–failure to repay a microloan can be just as devastating to your credit score as failing to repay a traditional loan.
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