23 Jan What is a Microloan and is it Right for My Business?
Microloans are a popular topic in the world of small business lending. These very small loans have a defined meaning and purpose. At the same time, many lenders have used the word to describe loans that don’t fit the original definition of the term. If you’re wondering “what is a microloan?” you’re in the right place. Let’s look at what the term means at home and abroad and if this type of loan is right for your business.
What is a Microloan, Exactly?
A microloan is a specific type of loan. There are a few key factors that help define a microloan as compared to other forms of lending:
The Amount Lended
As the name might tell you, a microloan is often for a very small amount of money. The funds provided might be as low as $25 or $50 in developing countries, where the concept first emerged. This is often enough to help start a business or address a meaningful financial need in these nations.
Microloans in the U.S. usually involve more money due to the higher costs of goods and services in the country. However, they still tend to be for lower amounts. The U.S. Small Business Administration oversees a microlending program where the average loan is roughly $13,000, for example.
The Type of Lender
A microloan doesn’t come from a bank or alternative lender or other type of business. Instead, individuals or nonprofits provide them.
Investopedia said individual lenders often use microloans as a way to earn relatively high returns on small initial investments. They may also be motivated by the desire to help entrepreneurs in need, especially in developing countries. Nonprofits also provide loans based on this drive to assist small business owners. That’s true in the U.S. and abroad.
The Type of Recipient
Microloan users tend to fit into two categories:
1 – Entrepreneurs in developing countries where it can be difficult to access traditional loans, the Balance explained.
2 – U.S. residents who own or plan to start a business but cannot qualify for a bank loan or need a relatively small amount of money.
Microloans help address needs in both of these underserved markets. This distinction is at the core of answering the question of what is a microloan.
Microloans vs. Small Business Loans from Banks
If a business owner wants to fund a small project or opportunity and can’t secure the funding from a traditional lender because the lower end of its lending limit is too high, they may turn to a microloan provider. Similarly, a borrower with a low credit score or other concerns may turn to a microloan if a bank loan is not viable.
The Value of Alternative Lenders
With a clear understanding of what a microloan is, it’s important to keep in mind it’s limitations, and that you have other effective options. Alternative lenders like QuickBridge are more flexible than banks when providing business owners with funding. Partnering with an alternative lender means you:
• Aren’t limited by strict bank rules and regulations.
• Don’t have to stay within the low lending amounts inherent in microloans, but can request and receive smaller loans.
• Can build a relationship with a lender that is entirely focused on helping small businesses like yours.
There are plenty of questions to ask any lender before applying for small business loans. Companies that partner with QuickBridge tend to like the answers they hear. We take the time to structure loan agreements that align with your needs and build a strong relationship that benefits everyone going forward.
To find out more about how we can help your business, get in touch with us today.
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