Microfinance Loans: How Small Loans May Be Just What You're Looking For

While microcredit loans first originated in the Third World as a way to help launch

small businesses thousands of American entrepreneurs are finding it as a viable alternative to traditional lending.

Many of the micro lenders, which are mostly non profits, receive the bulk of funds from the Small Business Administration. Now there are certain requirements to qualify for this small loan but it's much less difficult than that of traditional lenders.

The new age of micro loans for small business offers a variety of benefits that can be broken down to the following:

Business Training

The SBA requires that intermediary lenders provide business training and technical support to its borrowers. This educational component that micro borrowers will need to complete before the application is accepted is a step in the right direction.

By adding sound business training and planning more start ups can avoid making costly mistakes resulting in successful loan repayments and building a solid credit history in the process.

Flexible Requirements

Another area that makes these microcredit loans so attractive is the flexible guidelines for loan approvals. While many lenders are unwilling to approve a loan unless you have pristine credit, business history and sufficient collateral micro lenders take other factors into consideration.

This may include personal collateral and a personal guarantee but what truly separates micro lenders from traditional lenders is the personal character component. Micro lenders take a more hands on approach with its borrowers and go so far as to even contact personal references.

Building Credit

Microfinance loans also provide a way for small business owners to build or rebuild personal credit history. Many applicants are faced with little to no credit history and do not have the collateral that typical businesses use to secure a loan like commercial real estate, accounts receivables or inventory.

As you make payments on your small loan the micro lender reports its payment experience with you to the credit bureaus. This builds favorable credit history and increases your level of creditworthiness in the eyes of lenders.

Once a micro loan is paid in full then most micro borrowers are able to qualify for greater amounts of financing through traditional sources if they prefer.

Time

Time is of the essence especially if you are in need of funds for working capital. Waiting for a traditional loan backed by the SBA can take months where microfinance loans can take as short as 14 days to fund.

Keep in mind that each micro lender has its own lending requirements and it handles its own approvals at a local level. You can find more information on SBA's Guaranteed Loan Programs and a list of approved micro lenders nearest you at the SBA web site.

Some additional micro lenders you may want to consider reviewing are Accion, Kiva, Prosper, Zopa and Lending Club. Each of these lenders has its own requirements, lending limits and interest rates so take the time to review which one best fits your needs and comfort level.

The recent economic crisis created a huge demand for this new age of finance called micro lending. With the SBA stepping up to the plate and allocating $50 million in funding for its micro loan program it's no surprise that this financing option is going mainstream.

Whether you're just beginning your first business venture or need the working capital for an existing business, this small loan may just be the solution you've been looking for.

by: Marco Carbajo

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