Need a business loan but got bad credit? There is an alternative source of startup funding called “Microlending”that most entrepreneurs with no credit or bad credit don’t know about. Even better, the interest rates charged on these loans are usually much lower than standard credit card rates. Microlending is a multi-billion dollar industry with active lending operations in Asia, South and Central America, Africa and North America. In the United States, microloan organizations provide loans as small as $500.
In addition to granting loans, most microlending organizations offer low cost or free business development training courses for prospective or active borrowers. Some larger organizations provide skilled coaches or help connect borrowers to business mentors with expertise in marketing, product development, accounting and sales.
When applying for a microloan, you want to be sure you submit complete and accurate applications.
Here are some tips to help you speed through the application process.
No. 1: Start simple. Startup entrepreneurs often take on too many new product or service initiatives all at the same time, which only increases capital demands and business risk. Pick one concept that you can sell quickly and at the highest profit margins. You can expand your offerings with business progress.
No. 2: Estimate your startup costs. Estimate how much money you will need to set up your operations, solicit first customers, produce your product or service, and process payments from customers. Be practical and detailed.
No. 3: Define the loan purpose. Make a list of how you will spend the loan proceeds. If you want to purchase equipment with a loan, detail the brand and cost. And yes, you can buy used equipment with loan proceeds.
No. 4: Prepare a business plan and projections. Not all microloan organizations require a business plan for loan approval; however every organization will ask you to prepare a monthly projection of your first year projected sales, costs and operating profitability. Your local microloan organization will then work with you to help you evaluate if your proposed business can afford to repay the loan.
No. 5: Know your target customer. There is a difference between a novelty item that briefly captures our attention in a store and something of value that customers are willing to buy. Expect microloan application reviewers to ask you why you think you can sell your product or service to prospective customers and how your company’s pricing compares to competitors. These questions are not designed to intimidate or discourage entrepreneurs but help improve business planning.
Microloan organizations are excellent financing partners for first-time entrepreneurs who want to learn how to start a business within a supportive and friendly environment. Many cities are home to multiple microlending organizations so it is worthwhile for entrepreneurs to compare the loan support and education programs offered by different programs.