Need a loan for your small business? When the bank says no, a MicroLoan may be the answer for the funding you need.
Topics: What is MicroLending? Accion, Communities-at-Work, Kabbage, Lending Club, OnDeck Capital, Prosper, Small Business Administration, vs CrowdFunding, How do I Qualify?
When you hear the term, MicroLoan, you might think of something having to do with size. A MicroLoan must be really small, right? In some cases, yes, but that isn’t necessarily true. If you want to know more about MicroLending, we have all of the information you need right here. This Guide to Micro Lending includes the best MicroLoans for finding funding.
What is MicroLending? MicroLoans are small loans that are often used by businesses (for Finding Funding), who can’t get a traditional business loan from a bank. A Bangladeshi economist & winner of the 2006 Nobel Peace Prize for his work, is considered the first person to put MicroLending – as we know it today – into practice, lending money to women & men who couldn’t get loans from banks.
History of MicroLoans. Started as Grameen Bank – which lent largely to Bangladeshi women to buy cows, seeds, retail goods – and just about anything else to start a business. Today that idea has grown to massive proportions. Sites like Kiva still largely follow Yunus’ original idea, but MicroLoans are now available to nearly any entrepreneur in just about any size.
Sources of MicroLoans
Because MicroLending has proved successful, there are now numerous sources of funding.
Accion loans up to $50,000 to certain types of qualifying small businesses. For a basic loan, the small business owner must have a credit score of at least 525, have not declared bankruptcy in the past 12 months, have all bills up-to-date, & be able to exhibit cash flow or the ability to make monthly payments.
Communities-at-Work Fund. This MicroLoan organization is a partnership between Citigroup, the Calvert Foundation & Opportunity Finance Network. It makes loans to qualifying businesses and non-profits in low-income and low-wealth communities.
Kabbage is yet another source of money for small businesses, offering a Line of Credit that can be used to purchase inventory, fund payroll, or other small business needs. What makes Kabbage unique is, that it uses real time data to make an “instant” lending decision about a business. Instead of putting all the weight on the Credit Score, it may look at your Quickbooks Online data, PayPal, or eBay accounts. Later, it may up your credit limit by examining your Facebook or Twitter accounts. All lending decisions are made automatically through its computer algorithm.
Lending Club– If you have a credit score of at least 660, you may be able to borrow up to $35,000. Lending club is a “peer” lending site where you borrow directly from other members. You avoid the hassle & expense of going through traditional lenders while investors can get returns of 9 % or more.
OnDeck Capital provides short-term working capital loans for small businesses. The loans are true Term Loans, not Merchant Account advances or any other type of Cash advance. OnDeck uses different criteria to determine eligibility for a loan than most banks do, making it possible for some small businesses to qualify – when they wouldn’t through more traditional sources. Business owners can apply for their loans online or over the phone and be funded in as little as one business day. OnDeck requires businesses be open at least 9 months with revenues of at least $75,000 to apply.
Prosper– and Lending Club are similar organizations. Prosper makes “peer” loans of up to $25,000 and require the borrower to have a Credit Score of at least 640. Investors can fund as much of the loan as they would like, until the total amount is raised. The borrower then makes monthly payments.
Small Business Administration (SBA) has a MicroLoan program that provides loans of up to $50,000 to small businesses for startup & expansion. The average loan amount is $13,000. The funds are provided through local, community-based intermediary organizations. Businesses & startups that wish to apply for MicroLoans, need to do so, through their local intermediary organization. Names of those intermediaries can be obtained from your local SBA Office.
CrowdFunding & MicroLoan programs are similar in their Mission to loan to those who don’t qualify or don’t want to get a Bank Loan, but different in how they help you reach that goal. A MicroLoan is a monetary loan that has to be paid back in cash. It may come from multiple sources – but at its core – it’s a loan where interest has to be paid. Although the differences are becoming increasingly blurred, CrowdFunding is more often like a Grant where the person doesn’t always repay the funds. The most popular sites are:
KickStarter, which isn’t going to fund your business, but if you have a creative project, this is the place to go. Your project has to be 100 % funded by a certain date in order to receive funding and you retain complete ownership of the work. In return, the creator will often offer a product or service in return for the funding.
IndieGoGo is similar to KickStarter, but it has an option to receive funds even if the announced funding goal isn’t reached.
CrowdFunder participates in a new version called Equity CrowdFunding – blurs the lines between MicroLoans & CrowdFunding but there are still differences.
Equity CrowdFunding allows any number of investors to fund your business needs. As laws change, this model is evolving into both debt-based financing (like a MicroLoan) or equity-based where the investors take a stake in your company. Crowdfunder calls this, “CrowdFunding 2.0.”
How Do I Qualify for a MicroLoan?
MicroLoans may use the latest technology to add a modern twist, but all loans have the same basic rules. You have to demonstrate a Track Record of responsible financial behavior in your business & professional life. If you have other loans, pay them on time. Take steps to elevate your personal Credit Score, + provide plenty of evidence that your business is growing. Finally, explore the various options to find the one that best fits your needs.
Comments: Do you know any other Sources for MicroLoans?
from Business Knowhow 12/16 enhanced by Peter/CXO Wiz4biz
For more Info, click on Links for Finding Funding.