Are Microloans Helpful for Your Business?

Today’s financially stringent lending environment leaves business owners with few funding options. However, your company needs capital to upgrade your equipment, expand your inventory, or launch new marketing campaigns.

Thankfully, even in today’s curtailed banking environment, microloans can be just the solution to your cash flow woes. These typically have fewer requirements and less underwriting than larger sum loans.

SBA Microloans

The Small Business Administration (SBA) has been helping new business start and grow for decades. One way they help small business is through loan guarantees. Although the SBA does not fund loans, they do provide incentive for private banks and other lenders to make loans to qualified small business owners.

The SBA microloan program helps make funds available to local, non-profit intermediary lenders, who in turn make small, short-term loans to small businesses and non-profit child care centers. The lending intermediaries usually are organizations that have experience in lending and granting money, and they have experience providing managerial and technical assistance to small businesses.

Loans are capped at $35,000, but the average microloan amount is $13,000. These funds may be used as working capital, or to purchase capital equipment, inventory, supplies or furniture. As with any loan, small business owners must meet a lender’s credit requirements.

Peer-to-Peer Microloans

Since the advent of Web 2.0, more and more individuals are connecting together – even to lend and borrow money! Another microloan source for small businesses is through peer-to-peer loans, such as those found on Prosper.com.

With the help of the internet, small businesses can find peer sites that pool private investor money to help entrepreneurs meet small financial obligations. Entrepreneurs can apply for small loans, and those who meet credit requirements receive bids from borrowers. If the borrower receives enough bids to meet the loan, then the funds are transferred. Private lenders get the benefit of helping other small business owners and making a reasonable return. Entrepreneurs avoid the high cost and red tape of bank loans.

The good news for entrepreneurs is that money is available to help get a business started or growing. If you are a small business owner in need of a little cash, consider applying for an SBA guaranteed microloan, or work through a peer site and apply for funds from other business owners just like you.

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