Short-term Mircocredit

Microcredit is a need-based financing option where business loans are provided to low-income individuals to create sustainable living. Microcredit is different than small business loan financing in a number of ways, but primarily because microcredit focuses on immediate cash-flow to a very impoverished group of people. In most cases, microcredit is extended to a community or family rather than to a sole proprietor. The loan model is typically used by humanitarian organizations that are not looking to be repaid for the loans but to build sustainable communities.

Where Is Microcredit Used?

Microcredit started with aid initiatives in impoverished countries. There, foreign groups taught locals specific trades which would result in immediate cash flow. For example, local artisans in Caribbean nations may have learned how to create souvenirs, post-cards or hand-made crafts for sale at the tourism marketplaces. Other trades may include carpentry or metal working. The low income business loan sets up a shop for the newly trained craftsman to utilize. The concept is additionally used in impoverished areas within the U.S. where a local need can be fulfilled with a small enterprise. Opening a laundry mat in a low-income neighborhood can both assist the community and provide income and jobs for a large portion of its members.

Who is Eligible for Microcredit?

Microcredit loans are usually need-based. While other forms of small business financing may be extended due to your business ideas or the likelihood for you to succeed, microcredit is more like a grant. You must be able to show how receiving the money will generate the immediate cash flow you require to escape poverty while building a sustainable business in your community. Further, microcredit is not usually extended to individual borrowers. These loans target communities or groups of people where the needs of many can be served through one initiative. In the best cases, your community as a whole will benefit from the grant extended to you. While you become a business owner, the community receives valuable goods or services to additionally help others escape negative conditions of poverty.

What is Short-Term Microcredit and How is It Unique?

Microcredit is truly seen by most as a long-term initiative to bring low-income individuals out of their current negative situations. However, short-term microcredit can allow a person or community to establish some essentials while long-range financing goals are met. For example, if you are aiming to establish an automotive repair shop in a community that has no access to affordable auto repair, you may be eligible for microcredit. Now, if you see the perfect location for your shop go up for sale, you may want to seize the opportunity before your larger grants come through. Short-term microcredit may be used to take advantage of the initial chance to get your business off the ground before the financing is totally arranged. Since the goal of microcredit is to create immediate cash-flow, short term options can often be easier to arrange than lengthy and demanding yearly contributions.