A Closer Look at Micro Loans: Potential Bonuses and Drawbacks for Your Business

    It doesn’t matter whether you are a startup or a seasoned company, the need for funding is a typical problem to solve. While there are numerous tactics to obtain the desired result, a microloan is commonly underestimated. It is simpler to apply for regular credit from a local financial establishment, isn’t it? In practice, small-scale loans are more applicable and sufficient than they might seem at first.

    As their name implies, these financial agreements are little sums of money you borrow from the target organization. By getting to know more about their advantages and disadvantages, you will discover new ways to make your business more profitable and flexible in decision-making. Let’s dig in!

The Nature of Micro-Lending Financing

    It is structured similarly to a traditional loan, boiling down to the following stages:

  • First and foremost, you have to apply for a microloan.

  • Secondly, the target lender checks your documents and decides whether to approve your application or not.

  • If yes, you will then discuss terms and conditions to back up and finalize the custom microloan agreement.

  • Then your task is to fulfill the microloan’s requirements and stick to its repayment plan while matching its interest rate. Otherwise, you will have to deal with penalties and extra fees.

    Its core difference from traditional lending is obvious — the sum of money you can get. However, that’s not the only distinctive feature. The distinguished option stands out with its source of additional funding. For this reason, it is also known as peer-to-peer lending. Simply put, instead of applying to a classic banking establishment, you are welcome to directly cooperate with the lender. Instead of the lengthy and nerve-wracking lending and approval process, it is possible to get a funding source faster.

    Microloans can provide you with any sum that is viable for business projects to maintain urgently — from as little as $300 to around $5000, hence the name. Now that we’ve taken a sneak peek at the nature of micro-lending, let’s check what other reasons are there to utilize microloans for your benefit.

Why Microloans Are Worth It for Your Business?

    Overall, this format of funding is extremely divergent in terms of its efficacy and applicability. The received sum can commonly be used to cover the expense of any item or service, including materials for your project, inventory, working capital, supply chain management, etc. Please note it is essential to discuss how you can utilize the funds with the target investor — be cautious to see whether there are any limitations in the matter.

Here are some of the pros to pay attention to microloans as a source of funding for your company:

  • One of the crucial features that make them so eye-catching is the speed of the approval process. You don’t have to wait for ages until you can legally acquire the cash you require for your business purposes. Since the procedure is less stressful, it will be easier to stay focused on details and avoid any overpayment or scam risks.

  • Another bonus is that you are subject to more favorable taxing requirements.

  • Compared to traditional loans, this solution is way more customizable. Individual investors can certainly personalize the offer and provide you with as many financial resources as necessary. Since the sum doesn’t put the lender at risk in most cases, the interest rate is more advantageous as well.

  • It is simpler to customize the agreement’s conditions, given that you interact with the lender personally without middlemen. You can work on a compromise to meet the lending terms at the end, contrary to loans from online and offline banks.

  • Microloans enable your company to establish lasting and trust-based relationships with local investors. In this case, it will be simpler to seek assistance from reliable lenders and have peace of mind thanks to their time-tested reputation. Of course, it is also a wonderful strategy to avoid the negotiation’s hustle and bustle, which is typical when it comes to creating great partnerships with new third parties every time.

  • Last but not least, the qualification criteria for applying and being approved for a microloan are way more beginner-friendly and lenient. Although detailed instructions and requirements will vary from lender to lender, you can get a successful deal even if your credit score isn’t high.

    All in all, micro-lending is a highly accessible source of extra funding for businesses of any scale. Although it isn’t a universal offer you can find anywhere, the categories of microloan lenders are still extremely varied. The list includes peer-to-peer financial platforms, non-profits, governmental organizations, and so on.

What to Be Aware of When Applying for a Microloan

    The procedure isn’t flawless in 100% of cases. They won’t work for companies if the sum they require surpasses the limits of micro-lending. At the same time, you have to be extremely careful about the target deal’s conditions. Please analyze the contract in detail to see whether any hidden fees or skyrocketing penalties are between the lines.

Final Thoughts

    At the end of the day, microloans are a secure funding mechanism for businesses, letting them satisfy their urgent requirements instantly and without a headache. To stay on the safe side, take your time to check the perspective agreement’s details. With so many individual investors and other providers to choose from, you can certainly locate a perfect source of micro-lending financing for your needs.