How to fuel up your startup with micro-loans
Traditional lenders often refuse to provide small startups with credit lines and loans for business development under favourable conditions. Thatās why some young entrepreneurs prefer to apply for alternative financing options such as micro-loans.
Typical micro-lending non-banking organisations specialise in small credits to individuals and local businesses. It is a great option for small businesses that seek borrowing less than $50,000 for initial development. The average micro-loan for entrepreneurs amounts to around $12,000, according to Entrepreneur.com data.
The U.S.ā government agency, Small Business Administration (SBA) provides financial support to small business through 160 authorised micro-lending organisations around the country. Some micro-lenders gain funding from philanthropies and the local governments.
Microlending can be attracted for a variety of purposes, including general business development, equipment and real estate purchases, export deliveries, support for non-profit organisations and low-interest loans for disaster recoveries.
If micro-financing seems applicable for your business strategy, take a look at these general recommendations for beginners.
1. Create a business plan: calculate the amount of funding you need for your business and make sure your business model allows to pay off the loan on a monthly basis. Keep in mind that failing to repay a micro-loan puts you under real risk of personal bankruptcy.
2. Choose a reliable and legitimate micro-lender. Experts recommend to search for micro-lenders in your geographic area. Ask for advice and from other entrepreneurs and business communities or look through SBA site. Analyse the market and make sure your credit rating meets the requirements of selected micro-lenders.
3. Remember that micro-lenders may require you to partially invest your own funds in your business or use your house or car as a collateral.
4. If you want to be free to manage your business as you like, avoid signing up for a micro-loan with unfair, onerous terms. Ask the potential lender for interest rate details and unexpected service and guarantee fees. Whereas micro-loans are usually granted with higher interest rate compared to traditional commercial debt, try to negotiate your interest below 12%.
5. Treat your business with passion and strive for success to redeem your loan in time.