If you run a small business, finding financing can be a difficult process. It can be hard to get a bank loan or to convince an investor to get on board, if your business is small or new. Many small businesses need funding but can not get it from traditional banks or investors. That's where microcredit come.
This guest article was sent to us by Accion available. Accion is a nonprofit that provides microloans to small businesses. You can read more about them at the end of this article or visit the website here.
What is a Microloan?
As an entrepreneur, you probably know what kind of a loan. A microcredit is exactly what it sounds - made small loans for small business by designated lender. Usually microloans are for less than $ 50,000 and are used to help cover start-up costs and other early issues for small businesses and not-for-profit organizations. Accion average loan, for example, is for $ 10,000. To some context give amount of the SBA in 2015 given the average general small business loan was more than $ 370,000 . Thus, a micro-credit is a good option if you want to borrow a smaller amount.
Microloan funds are distributed by the designated community-based nonprofit intermediary lender . In addition to providing small businesses provide funding , many of these lenders also management and technical support for its customers.
The qualification for a Microloan
It is easier to qualify for a rule for a small loan than for a traditional business loans . The programs are aimed at helping new and small businesses, so that the requirements are more flexible. differ As with conventional loans, the specific terms from lender to lender - the business you are in, your track record, the amount of loan you need, how old is your business, and other factors can all affect your suitability with a given lender. Microcredit will work with you to get you and your goals and consider this information when your loan application to be assessed. This is one of the biggest differences between microcredit and traditional credit - it's about your character as an entrepreneur, not just your credit score.
, where a Microloan
to get before you apply for a loan, you should shop around and see what other microcredit require and offer. Some microcredit work nationwide, while others specialize in particular geographical areas, types of businesses or loan sizes. Accion and SBA work nationwide, for example, while the Opportunity Fund focuses on California and Business Center for New Americans microcredit for immigrants in New York offers. The SBA maintains a List of microlenders in each state , so that's a good place to start when looking for lenders in your area. Each will have its own requirements for loan applications - you will not only have to be the requirements, so you do not turn in an incomplete application. do some research, you can forward a lot of time for loans with lenders save application that are not a good fit for you.
Applying for a Microloan
Once you have narrowed down your selection, it is time to reach the lender and ask for a loan. When you apply, you need to provide some financial information about your company available and themselves. This may include your personal payslips and information on all unpaid debts that you or your business. You will need to show that your company sufficient cash flow, the payments on the loan to cover the question for you, which means that you will need proof of your current income and describe a business plan, which will look like your surgery go forward.
If you turn in your application will be returned to hear from the lender within a few days, what other documentation you need to provide and how to proceed with the application process. This is followed by the time the agent is obtained vary depending on the circumstances. In some cases, want the lender may inspect your home office or make showcase sure it is legitimate and well organized. Your lender may also require personal collateral for the loan, which must be evaluated to ensure its value. This can extend the timeline of the application process. In other cases, the application will be simple and will not take as long. Ask your lender if you apply, how long they expect the process to take over.
If you do not immediately approved, ask the lender what you do to strengthen your application and when you should reapply. If you are approved, it's time to talk conditions.
Microloan terms
Just as with a traditional loan, you will have to agree on repayment terms with your micro lender. The key terms are:
- rate
- repayment schedule
- length of the loan
- restrictions on the use of funds
the SBA allows repaying your microcredit to 6 years. The interest rates are typically in the range between 8% and 13% dependent on general economic conditions and your business' financial circumstances.
The terms your lender offers will depend on how much you borrow, what you are using it for their own institutional credit requirements, your financial history and the state of your business. If you do not think the conditions are fair or practical, you can always negotiate. You know that your company can be read from only your business plan better than the lender, so you may be able to convince the lender believe that you deserve a better deal.
Whatever the conditions, you should ask them all carefully and sure know how to read all about the loan before make a decision. The lenders are there to help you and can explain everything, that is not clear. Acquisition of a loan is a big decision, and you need to have all the information before you commit. Once you have been approved and the final documents signed, the money is sent deposited into your bank account or by check.
is a Microloan for my business?
The answer depends of course, reflect on your circumstances and needs. Any type of business can take a microcredit - restaurants, retail stores, salons, and more. Microloans are often a good fit for individual companies, companies with a few employees, women-owned businesses, minority-owned businesses and other companies have difficulty accessing traditional credit have. They are great if your business is very new and you do not have a long credit history, or if you only need a small loan. They are also a good way to build your credit so that you can lower interest rates and with subsequent financing rounds get more options. If your business needs a small loan and you do not have access to a traditional bank loan, a microcredit to be the best choice for you.
If you are considering looking for a micro-credit, ask yourself these questions:
If the traditional lending One option
may be a micro-credit for your business when traditional credit is not a viable option. Traditional business loans require a good credit score and a strong track record for your business, both for new entrepreneurs and small business owners can be tough. Maybe your business is new, so you. Does not have a long credit history Maybe you have had credit problems in the past and try to repair your score. You can use the funds to grow your business while you build your credit score, opening more funding in the future.
How do I use the funds?
In financing decision, you also need to consider how you will use to get the money. Microloans can be used to purchase devices or lease for office space or furniture, for machines or tech needs, and also for business working capital. If what your business needs, a microcredit could be the right choice. Some lenders restrict the use of funds - the SBA does not allow you to use micro-credit funds to buy real estate, for example. You need to talk to your lender about the restrictions on the use of money.
How much money do I need?
Finally, consider the size of loan that you need and can handle. Traditional business loans are to be significant in the rule which often higher in the 6-digit or. You may not need as much of a loan. You may not want so much of a credit - high debt mean large interest payments, making it difficult to keep to make your head above water. Acquisition too large a loan can hurt your credit score.
Get Funded!
with the financing approach is often one of the more frustrating aspects of running a business. Traditional loans may not be an option, especially if your business is small or new. The good news is that other options, including micro-credit, for getting the money you need to grow your business. Whatever type of financing you pursue, remember to shop around and consider all options that you get the best possible fit to make. Talk all available opportunities to learn (both traditional and micro), other business owners and your financial advisor about to finance your business with lenders.
Thanks to Accion for entry and share their experience and expertise around this theme. As the largest non-profit micro and small business credit network in the United States, combines Accion small business owners with the accessible financing and advice it takes to create healthy businesses or grow
.
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