Microcredit Business Loans Explained

A microcredit business loan could be very beneficial for your business. Depending on the unique needs of your business, these "micro loans" could be just what your business is looking for. This type of loan is made for those businesses that do not need to borrow much money. Many commercial loan programs have a large minimum involved. Therefore, you could be borrowing more than your business needs to borrow. Here are the basics of microcredit business loans and how they could help your business. 

Microcredit Business Loan Basics

One of the most popular micro loan programs in the market is through the Small Business Administration. The SBA started the micro loan program to assist businesses with a number of different needs. The basics of a microcredit loan are very similar to any other type of loan program. The lender gives the business a certain amount of money and then gives them a certain amount of time to pay it back. The loan has a monthly payment involved and it is based on the interest rate of the loan. 

Microcredit Loan Specifics

  • Loan amounts- With a microloan from the SBA, you can borrow as little as $500. You can also borrow up to a maximum of $35,000, before you have to jump up to another loan program.
  • Fast approval- One of the major benefits of using microcredit loans is that they involve a relatively short approval process. The loans are designed to be fast and efficient. Therefore, you can get in and get the money that you need quickly.
  • Unsecured- While some microloan programs may require you to put up some form of collateral, you can find programs that are unsecured. This will prevent you from having to come up with any collateral to get the money that you need.
  • Interest rates- Although these types of loans can be very convenient and get you the money you need, you will have to pay a higher interest rate for it. The interest rates that you pay for this type of loan will be somewhere between 8 and 13 percent. While it is often still worth it to get the money that you need, it can get expensive. 

Where Microcredit Loans Are Found

In order to get a microcredit loan, you should be able to work with any lender that deals with the SBA. The SBA is a government program that insures loans made by lenders. Therefore, many different lenders in your local area will usually fit into this category. These lenders write the loans and the SBA insures them. Check with your local bank first because they can usually offer the program to you.

Uses of Microcredit Loans

You can use microcredit loans for a variety of reasons for your business. You could use the money as working capital for a certain period of time. You could use it to purchase equipment or inventory for your business. As long as you are not using this type of loan to pay off debt from another loan, you should be able to use it for any business expense.