Finding credit to finance a small business is a daunting task. It is difficult to get an investor to fund your business or a bank loan when your business is small or new. This is where microloans/microcredit comes in.

What Is A Microloan?

A microloan is a small amount of money that is lent at a low interest rate to small businesses. Microloan was founded in Third World countries as a way to help people who donÔÇÖt have access to credit to finance small businesses. But today, many countries around the world are turning to microloan as an alternative to traditional lending.

What Are The Requirements of A Microloan?

It is basically easy to qualify for a microcredit than a traditional bank loan. These programs are meant to help new and small businesses; therefore the requirements are more flexible. Just like traditional loans, the eligibility requirements differ from one lender to another, your track record, the type of business you want to start or run, how old the business is, the amount you need and other factors.

Microloan lenders usually work closely with their borrowers to understand their goals and take the information into account when evaluating loan application. ThatÔÇÖs the main difference between microloans and traditional loans – itÔÇÖs about the character of the business and not just about his credit score.

What Are The Benefits Of A Microloan To My Small Business?

• Business training

One of SBAÔÇÖs requirements is that microlenders provide technical and business training to their borrowers. This important educational requirement which you are required to fulfill before being awarded a loan, is a step towards the right direction.

With the proper business training and planning, many new businesses can avoid startup mistakes and are likely to be more successful in paying back the microloans and building a good credit history.

• Flexible requirements

Another factor that makes microloans attractive is the fact that they have flexible guidelines for approvals. Although many lenders will not approve a loan application unless you have a good business history, credit score and sufficient collateral, microloan lenders will consider other factors such as personal guarantee and collateral. But the main difference between traditional lenders and microlenders is the personal touch.

• Building or rebuilding credit

Microloans also help small businesses to build or rebuild their credit. Many people who apply for micorloans have little or no credit history at all. When you pay back a microloan, the lender gives you a positive feedback to credit bureaus. This builds your credit history and increases your level of creditworthiness. When you repay the loan, you are likely to qualify for larger amounts of funding through tradition sources.

• Time

Time is of great importance, especially for small business owners looking for credit. A traditional loan takes months, whereas a microcredit can take as short as one day to come through. Microlenders have different requirements

Last but not least, microloans also foster business development. They come with development opportunities.

How Can I Spend My Microloan?

You may not use a microloan to buy property or land, or to pay your employee bonuses and salaries. You may also not use a microloan to repay other loans. However, you can use it for various purposes that are important to businesses, including:

• Inventory supplies
• Furniture or fixtures
• Working capital
• Equipment or machinery

While microloans may not be the perfect solution for every business, they provide small business owners with support and credit they need to succeed. If a microloan doesnÔÇÖt fit your business needs, you donÔÇÖt have to worry. There are many other options out there.