Microcredit Business Loans

If you are just starting out in your business, or you only need a small amount of capital for a specific project, a microcredit business loan may be for you. Micro-credit loans, sometimes simply called “micro-loans,” are specifically designed for business owners who only need to borrow a small amount of money. The United States Small Business Administration, or SBA, developed the micro-credit loan program to better assist new business owners who had difficulty obtaining smaller loan amounts from traditional lenders.

How Do Microcredit Loans Work?

Generally, microcredit loans work just like any other loan – you borrow money from a lender, and then you make monthly payments towards that lender over a fixed period of time to pay off both the balance and the lender’s interest. What makes a microcredit loan different from a traditional loan is simply the amount you need to borrow. Microcredit loans are just loans that are for only a few thousand dollars, smaller than with a typical business loan. Some lenders feel that these smaller loans would gain would not be worth their time.  With a micro-credit loan, however, you can borrow as little as $500 for your business, if that’s truly all you need. The most money you can borrow using an SBA micro-credit loan is $35,000.

However, there are some other restrictions on micro-credit loans you should know about. The interest rates of microcredit loans is usually slightly higher than with traditional loans – usually between 8% and 13%. You will also usually have only a few years to pay off your loan – depending on what you are using it for, you may be given between one and five years before your loan comes due. The longest term for an SBA micro-credit loan is six years.

What Can I Use Microcredit Loans For?

You can use the money from a microcredit loan for any legal business-related purpose, such as purchasing office equipment or furniture, buying your first inventory, or for any other business expense.

Where Can I Get a Microcredit Loan?

Unlike other loans, microcredit loans are generally not available from traditional lenders such as banks. They are also not available directly from the SBA. Instead, the SBA works with non-profit community development corporations in different communities. The SBA gives these local corporations enough money to fund several micro-credit loans each year, and it is up to these corporations to decide who is eligible.

The good news is that these community development corporations also provide free business training and technical help to potential microcredit borrowers, to ensure that your business has the best chance of success. In fact, some corporations even require you to go through one of their training programs before you can apply for a micro-credit loan.

To locate a lender for a microcredit loan, you can find a list of lenders on the SBA website. Each lender has its own loan requirements, but most will also offer you help in preparing your application to fit these requirements.