Microloan

Best Microloans for Small Businesses

You may be considering applying for a loan, yet, if you don’t have an established credit history, a lot of mainstream lending alternatives may not be an option. A not as widely known alternative is the microloan. The microloan can provide you with a small cash injection with fair interest rates.

Financially Reviewed by Somer G. Anderson

At a glance — Microloans can be advantageous for small businesses that need a quick cash injection, or those that are just getting started. They typically have 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

SBA Microloans

Read more about SBA microloans

$500 - $50,000

Vary by lender, but usually 8-13% APR

Business owners can’t have child support payments more than 60 days overdue

Apply Now

Kiva

Full Kiva review

$25 - $15,000

Starting at 0% APR

A friend or family member must lend to your business.

Apply Now

Accion

Full Accion review

Max $1 million, no published minimum

    7-34% APR

    Startups need a cosigner.

    Apply Now

    LiftFund

    $500 - $1 million

    Rates not published -  calculated after application

    Your business must be located in one of the 13 states served. Startups need to show another source of income.

    Apply Now

    Fundera

    Full Fundera review

    Amounts vary by lender

    0-34% APR

    Requirements vary since Fundera links you to lenders. 

    Apply Now

    Grameen America

    Initial max loan amount of $2000. Subsequent loans can be larger

     

    Starting at 15% APR

    Loans for female entrepreneurs. You must form a group with four low-income women, and all need to participate in financial training.

     

    Apply Now

    What is a Microloan?

    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.

    Can Your Businesses Benefit From a Microloan?

    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
    • Businesses that don’t qualify for traditional loans due to lack of revenue or documentation
    • Businesses in low-income and underserved areas

    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.

    Smartbiz

    How Do Microloans 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.

    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.

    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

    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.