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Microloan

Best Microloans for Small Businesses

If you don’t have an established credit history, a loan from mainstream lenders like banks may not be an option. Microloans from alternative lenders can provide you with a small cash injection with fair interest rates.

Financially Reviewed by Somer G. Anderson CPA, on 6.1.2020

At a glance — Microloans can be advantageous for small businesses that need a quick cash injection, or those that are just getting started. This type of loan typically has a quick application process, and lenders may accept lower credit ratings than traditional loans. On this page, you will find the right microloan for your business.

The Top Microloans for Small Businesses

There are several options of microloans for small businesses. Our experts have created the table below, so that you can easily compare them and choose the best solution for your business needs.

Company

Max/Min Loan

Loan Rates

Special Requirements

Get a Loan

Credibly

Credibly review

$5,000 - $400,000

Factor rates

1.15 to 1.45

 

Revenue $15,000 per month, minimum credit score 500, and 6 months in business

Apply Now

Kiva

Kiva review

$25 - $15,000

Starting at 0% APR

A friend or family member must lend to your business.

Apply Now

Accion

Accion review

Max $1 million, no published minimum

    7-34% APR

    Startups need a cosigner.

    Apply Now

    Fundera

    Fundera review

    Amounts vary by lender

    0-34% APR

    Requirements vary since Fundera links you to lenders. 

    Apply Now

    Headway Capital

    Headway Capital review

    Credit Line Up to $100,000

     

    40-80% APR variable 

    Annual business revenue of $50,000 and a minimum personal credit score of 560. At least 6 months in business.  

    Apply Now

    The Best Microloans For Small Businesses Explained

    1. Credibly - Best for Short-term Financing

    Credibly is based in Michigan. This online lender provides short-term financing such as business loans and merchant cash advances. Credibility boasts relatively easy qualification criteria. Typically, you only need to have been in business for six months or have a credit score of 500.

    Pros

    Cons

    • Low credit score criteria
    • Discounts for early repayment
    • Financing is tailored to business growth needs
    • Fast and easy application process
    • Clear and informative website
    • Rates might be expensive
    • Some additional charges
    • A blanket lien is required

    Features explained 

    Credibly offers the following loan types:

    • Working Capital Loan - Up to $400,000 with 6 to 18-month anticipated term
    • Merchant Cash Advance - Up to $400,000 with 3 to 18-month anticipated duration
    • Business Expansion Loan - Up to $250,000 with 18 or 24-month anticipated term
    • Other Financing Options - Up to $5,000,000 with various terms

    Our verdict

    Credibly provides short-term business loans and merchant cash advances for small businesses that are just starting out or looking to expand. Credibly is great if you require funding as soon as the same day you apply. Read the full Credibly review for more details.

    2. Kiva - Best for Interest-Free Microloans

    Kiva is an important microlender to look at. Kiva works both domestically and globally. They offer interest-free microloans of amounts as great as $10,000. You will need to pay back their loans from between three to 36 months.  

    Pros

    Cons

    • Suitable for new businesses
    • No interest rates or additional fees
    • No credit score requirements
    • No prepayment penalties
    • Great customer support
    • Not tailored to large businesses
    • Lengthy application process
    • Typical funding time: 1 - 3 months

    Features explained

    Kiva exclusively provides mircoloans under the sum of $15,000. You may require a larger loan and would therefore need to look to a lender other than Kiva. If you are looking for a small loan with the best interest rate - 0% - then Kiva is a great choice. There is a long funding process and you will need your friends and family to contribute to your loan before they will help you crowdfund the remainder.

    Our verdict: With 0% interest rate, Kiva is a great crowdfunding platform for entrepreneurs that need small loan sums. Read the full Kiva review for more details.

    2. Accion - Microloans for Startups

    Accion is a non-profit organization that works around the world. The aim of Accion is to provide people with the financial backing they require to develop successful businesses. Accion USA forms the biggest network of microlending organizations. It boasts offices in almost 30 cities in the USA and has given out approximately 50,000 loans, equaling more than $450 million.  

    Pros

    Cons

    • Lends to businesses that can’t qualify for other loans
    • Provides financial education  
    • Maximum term length of  5 years 


    • Loan offerings tend to be more expensive than others
    • Very strict eligibility requirements 
    • Personal guarantee is necessary to qualify
    • Very long application period  

    Features explained

    Accion loans are offered in amounts as large as $1 million, so they don’t only provide microloans, although microlending forms a large portion of their business. 

    To be eligible, you need a credit score of more than 575, no bankruptcies in the last year, no foreclosures over the past two years, no court judgments, and no more than $3,000 in unpaid taxes. These requirements can differ a bit according to the branch you apply to.

    Microloans gained through Accion work much like SBA microloans, however, the funds are received via many different avenues. 

    Our Verdict: If you have a startup that requires a loan, Accion will likely be the lender you want. Read the full Accion review for more details.

    3. Fundera - Best for New Businesses

    Fundera is similar to Lendio. It is a lending marketplace that allows you to compare loans. The only difference is that Fundera’s marketplace also features personal lenders. 

    Pros

    Cons

    • A easy and transparent process
    • Great customer support
    • The entire process is completed online
    • No extra costs or hidden fees
    • APR can be high for specific loan types  
    • Not available in all states

    Features explained

    Certain businesses (particularly newer ones) will find the process for applying for a personal loan easier than the process of applying for a business loan. As personal lenders don’t mind how long or short a time you have been in business. The income requirements they have may also don’t necessarily need to be derived from your business revenue. 

    Nevertheless, it is often better for businesses to apply for business loans rather than personal loans. Luckily Fundera offers both loan types.

    Our verdict: If the idea of a lending marketplace appeals to you, and you may want to go for a personal loan, you should look into Fundera. Read the full Fundera review for more details.

    5. Headway Capital - Best for Line of Credit

    Headway Capital offers small business owners lines of credit from $5,000 to $100,000. Their line of credit is suitable for small business owners in search of financial flexibility. A line of credit lets you draw funds when you require them the most (up to the maximum available credit limit), and you will only need to pay interest on the amount you borrow.

    Pros

    Cons

    • Quick funding
    • No prepayment penalties
    • Speedy and simple application
    • Draw fees apply
    • High APR rates

    Features explained 

    Headway Capital offers the following funding options:

    • Business line of credit - a loan where capital can be drawn upon when required to meet a number of business needs
    • Self-service line of credit - a loan where capital can be drawn upon when required to fulfill various business requirements

    Our verdict:  

    Headway Capital provides businesses with access to fast funds and manages their current finances. If you need fast funding for your business and want to save on interest, Headway Capital is a solid choice. Read the full Headway Capital review for more details.

    What Are Microloans?

    Microloans are funding options that provide $50,000 or less in financing. They’re an excellent option - if your business only needs a small amount of cash.

    Microloans typically need to be paid back on a short-term basis, ranging from three months to seven years. Interest rates, for these loans, usually fall between 12 and 18%. While these numbers may appear high, remember that microloans have a short term, so you may end up paying less interest overall.

    As with traditional loans, you may need to put up collateral to receive financing. For example, personal assets, business equipment, or real estate can serve as a guarantee that you’ll repay the loan.

    Recommended Reading: Best Business Loans for Bad Credit in 2021

    How a Microloan Can Help Your Small Business?

    Small businesses with few employees and low capital needs are typically the best candidates for microloans. Ventures that fall into this category may include:

    • Startups - microloans are designed to help small businesses get a foot in the door. If you want to get a small amount of funding quickly to get your business up and running and aren’t eligible to get a loan from traditional lenders, a microloan might be your best option 
    • Businesses that don’t qualify for traditional loans - due to lack of revenue or documentation. Microlenders typically have less restrictive loan requirements, meaning that microloans are significantly simpler to get than traditional options 
    • Businesses in low-income and underprivileged areas -  many microlenders use their loans to address existing inequities in the way capital is offered to small businesses in various areas of the country. Microloan lenders, often to provide loans to businesses serving disadvantaged communities, female-owned or minority-based businesses, or low-income business owner

    Microloans for small businesses may enable entrepreneurs to:

    • Expand services  
    • Pay an office lease 
    • Hire more employees 
    • Increase working capital 
    • Build credit 
    • Cover emergency expenses or repairs 

    In the following situations, a microloan usually isn’t the best solution:

    • Commercial real estate purchase
    • Buying equipment that costs more than $50,000

    In such cases, businesses should seek other financial options. Traditional bank loans may be a better alternative.

    How Does Microlending Work?

    Microloans are similar to traditional loans. Yet they aren’t issued by banks or credit unions. They’re often administered by nonprofits that act as intermediaries between borrowers and lenders.

    Microloan organizations set the regulations for the funding they make available. Each microlender has specific policies regarding how you can use their financing. However, with a bit of effort, you can find cash for nearly any business purpose.

    The length of a microloan can vary significantly. Smaller loans, such as those under $5,000 typically have shorter repayment periods. You may even be able to begin paying immediately without any penalties.

    Recommended Reading: Invoice Factoring for Small Businesses

    How to Qualify for a Microloan?

    Each microlending organization or intermediary has specific requirements, but there are a few commonalities among them. Most will look at the following criteria:

    • Your credit score
    • Business revenue
    • Any other income sources
    • How long your business has been in existence

    Before you apply for a microloan, it’s wise to obtain your credit score and a credit report. Check both personal and business credit ratings. You can access this information free of charge on the internet.

    Once you know your credit rating, you can check whether it meets the requirements of the microlender you’re considering. You typically need a credit score of 620 or higher to qualify for a microloan. Some lenders may accept lower scores, but then the interest rates will typically be higher.

    If your rating doesn’t meet the requirements, you have the chance to clean up your credit before applying. Be sure to request correction of any errors you find in the report.

    Some microlenders will request a business plan to help them understand how your company functions. This document should include:

    • Your business goals
    • How your company makes money
    • Who the stakeholders and suppliers are
    • Other resources your business depends on to function
    • How you reach new customers and maintain current ones

    You should also be prepared to offer a personal guarantee or business collateral. In this way, you authorize the lender to seize specific assets should you fail to repay the amount borrowed. Make sure you understand all the terms before signing any loan agreement.

    Recommended Reading: Best Unsecured Business Loans of 2021

    Microloan Application Process

    The application process for a microloan is typically straightforward. While traditional loans take weeks or months to be approved, when you apply for a microloan you may be able to receive funding within days.

    The process of applying for a microloan usually follows these steps:

      1. Fill out an online application.
      2. Talk with a loan specialist.
      3. Send any required documentation.
      4. Receive an answer regarding approval.

    Microloans Pros and Cons

    Just like any type of financing, microloans have various advantages and disadvantages. The lists below can help you understand them better.

    Microloans Pros

    Microloans Cons

    • Fast approval process
    • Lower credit scores acceptable in some cases
    • Interest-free loans may be available
    • Flexible requirements
    • Many lenders offer financial training
    • Small loan amounts
    • Higher and more frequent payments, sometimes as often as weekly
    • Collateral or personal guarantee may be necessary
    • Restrictions on how funding can be used

    See Our Additional Guides on Business Loan Types

    Final Thoughts

    A microloan may be exactly what your venture currently needs to succeed. Microlenders provide greater flexibility than traditional loan sources. Financial training is also available in many cases.

    On the downside, microloans provide smaller amounts than traditional financing methods. They may also require higher and more frequent payments. Borrowers can expect to need collateral, and there are often restrictions on how funds can be used.

    Despite these drawbacks, microloans provide significant assistance to entrepreneurs facing financial challenges.