Let’s say your small business has only been around for a few years. While you could use a sizeable loan to spur growth, you really just need $20,000 to keep the company moving forward.
Because of your short credit history and need for a minimal amount of capital, traditional lenders won’t consider you for a loan.
Luckily, there’s a special type of loan out there for just this kind of situation: a microloan.
The Small Business Administration (SBA) offers microloans averaging just $13,000 and exceeding $50,000.
The SBA established its microloan program in 1992 to make it easier for entrepreneurs to obtain funding. Other microloan institutions soon followed.
Fundera explains that virtually any registered business can qualify for a microloan. In general, though, these loans work best for early stage startups looking to raise a small amount of capital.
Small Biz Daily adds that microlenders also tend to target certain groups of people who struggle to gain approval for traditional loans, such as women, minorities and those with disabilities.
How to get a microloan
It’s vital to shop around to make sure you find the best terms for your loan, says Fit Small Business.
As you do this, you’ll need to demonstrate that your business earns enough money to pay back the loan on time. (You may also need to do a bit of negotiating to make sure you get the best terms from your lender.)
It helps to have a strong business plan prepared to share with potential lenders. The more details you can provide about your growth plans, the more confident a lender may be in your future success.
Fit Small Business added that each lender may have different eligibility standards and application requirements. Make sure to do your homework and give each lender what it needs.
How to use your microloan
Different lenders may have different terms for how you can use the money from a microloan. The SBA allows its microloans to be used for:
Inventory or supplies
Machinery or equipment
If you need a loan to purchase real estate, refinance debt, or for any other reason, consider applying for an SBA 7(a) loan, which has more flexible spending restrictions.
When you’re ready to invest more in your business, microloans can help you succeed.