Who qualifies for a microloan?
Microloans were established and are funded by the U.S. Small Business Administration. The idea behind microloans is to provide a quick start up for smaller companies or for lower income individuals. The limit for a microloan is $50,000, but most loans are usually under $20,000. The SBA provides these funds to lenders who then distribute the funds to qualifying individuals.
Each individual lenders has their own requirements for qualification; however, there are some commonalities between all of them. Some of these commonalities include credit, personal guarantee, collateral, and sometimes special training or classes. Individuals must be 21 years old or older in order to qualify. In most cases, the individual taking out the loan must be the sole owner of the business that will be funded by the loan.
Microloans can be used for a variety of purposes which include things like machinery, furniture, working capital, etc.—whatever it takes to start up a small business. However, microloans cannot be used towards purchasing real estate or towards paying off existing debt.
In order to secure a microloan, individuals have to go through an application process with a SBA approved lender. On the SBA website, there are lists and links to loan providers. The application process is different for each lender. One example of such lender is Kabbage. Kabbage provides microloans from $500 to $100,000. The SBA itself also provides microloans to small business owners. They, of course, have their own terms and conditions, including what the microloans can and cannot be used for.
The repayment process is different for each microloan because the loans are provided by the different intermediary lenders. Usually, the repayments include processes similar to normal loans. Microloans can have interest rates, just like traditional loans which will have to be paid off. The time frame of paying off microloans must be within six years of signing.
Crowdfunding is one major alternative to microloans if you can’t qualify for one or don’t feel like it is the right fit for your business. Crowdfunding is basically mass fund-raising for your business. This can be achieved through networking or other means. Go Fund Me is a rising resource for crowdfunding. It is a way to use social media as a platform for fund raising. Users can ask their Facebook and other social media friends to donate to their business causes.
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