Microloans are a product of the digital age, connecting small business owners and entrepreneurs with the working capital they need to grow. While they might come in small amounts, they can have a big impact in your business.
What are Microloans?
Today there are many different microloan programs but most share a few common characteristics. They are loans of comparatively small amounts, ranging from as little as a few hundred dollars to as much as $100,000; the average amount of a microloan is about $13,000. They are usually uninsured and borrowers aren’t required to provide collateral as surety against the loan.
Apart from that, microloan programs can vary widely. They might be extended by individuals to entrepreneurs directly, administered through associations like peer-to-peer lending groups or offered by platform lenders. In addition, microloan programs might be open to any applicant or restricted to minority business owners, non-profit organizations, women entrepreneurs or other special interest recipients. Likewise, funds might be granted to any type of business or limited to startups, young or small businesses.
While this type of financing might be available to any type of business, it’s more typically used by new or young businesses that haven’t borrowed from a bank before, and whose working capital needs don’t rise to the amounts banks would typically fund.
Lenders who take an active role in selecting which businesses receive funding might require applicants to provide a business plan, proposed use of funds and undergo credit and due diligence background checks. By contrast, online lenders may be able to provide answers and funding instantly, based on an organization’s sales history alone.
5 Ways a Microloans Could Benefit Your Business
- Covering Expenses During Crunch Time
Businesses of every size need to maintain healthy cash flow; however, most businesses will experience low cash flow at some point. Low cash flow might be caused by unforeseen expenses or when a cyclical or seasonal lull temporarily reduces revenues. A microloan could be an ideal way to cover expenses during crunch time, ensuring that your bills get paid and payroll gets funded.
- Equipment Repair, Replacement or Upgrade
Most business operations – even those of home based businesses – depend on equipment of one type or another. If equipment fails unexpectedly, a microloan could give you the working capital you need to replace it or pay for repairs.
If your equipment is becoming obsolete or new equipment would give you a competitive advantage, the ability to produce at a faster rate or enable you to extend more product or service options, microloans can give you the buying power you need to purchase new equipment and enhanced revenue will help you repay the amount.
- Adding New Revenue Streams
Expanding your inventory or adding new service options for customers could mean new streams of revenue for your business. You can use microloans to buy inventory, expand your square footage, remodel in order to maximize your facility’s use of space, hire additional staff, buy supplies and pay for anything else your business needs to create new revenue drivers.
- Putting Your Marketing Machine into Overdrive
A lot of small business owners fail to budget adequately for marketing. In fact, marketing problems are the number one reason startups fail, including:
- Lack of marketplace demand
- Out-maneuvered by competitors
- Didn’t have the right product
- Ineffective marketing (or no marketing at all)
- Mistimed the market
- Picked the wrong location
- Didn’t respond to marketplace changes
You can use microloans to put your marketing machine into overdrive, executing campaigns that drive demand, building a website or apps that engage customers, investing in paid search, hiring marketing staff or consultants, advertising in the right media or investing in product development so that your product is right for the market, right now.
- Taking Advantage of Lender Resources
Microloan lenders often extend expertise and resources to borrowers as a side benefit. Since they have a stake in the success of the business, they want to do all they can to help borrowers improve their business operations, increase sales and grow. They might offer online resources like e-books, guides and blog articles or provide webinars or coaching directly to business owners.
Working capital is the lifeblood of startups and small businesses, which, in turn, are essential to the economy of the local community (and nation as a whole). Microloans can put capital into your hands at those times when your business needs it most, so you can grow your company to the next level.