A Microloan is a modest, small sum of money loaned from a bank or any non-profit intermediary for working capital, dealing payroll and equipment purchases. The capital can also be used for furnishings, fixtures and even for supplies. However it cannot be used to pay another existing debt or loan. Microloans are similar to conventional loans in almost all the respects except the fact that they are generally lesser amounts and are primarily used to contribute towards the growth of a running business.
The loan term is proportional to the size of the loan. It could be a maximum of 6 years for a small business purchase of $25,000 worth of equipments. However, the term is subjected to change for a very small purchase like a computer or printer for $1,500. As far as the size of the loan is concerned, the maximum amount is currently $35,000. There are chances for this maximum amount to be increased to up to $50,000. While the interest for a microloan is subject to change based on the lender, the maximum limit can get to about 13% and the minimum can get as debased as the lender would agree. The average loan maturity period is 6 months. However there are some exceptions to the general rules concerning Microloan program as well.
As the owner of a business enterprise, you will be required to produce some collateral. The collaterals may include equipments, inventories or properties. In case a small-time business owner fails to possess any legal collateral or does not agree to produce one, the banks don’t find it deemed to lend any money to the person. Though a microloan is a small sum of money, you can still get it approved for starting a business or for its expansion. Consider opening a restaurant as an example. After all the planning and deliberation, if you find that you require a modest amount of money, say $25,000, for purchase of tables, microloan is a suitable option.
A small-time business owner should also be ready with the necessary documentation, such as a business plan, profit-loss statements, cash flow details and the like. Business insurance on the collateral is also a mandatory requirement.
Small-time businesses that need help, in the form of guidance, to meet with the requirements for the guarantee of loans can approach the Small Business Administration. They have valuable tools to help you and they may also direct you to the right source of help. Mostly the advice comes free and guides you to run your business more efficiently.
They also provides other loan options for people in need of loans of larger size or longer terms. However for expansion or initiation of new business ventures, a microloan is the best option.