Small business loans: Microloans anyone?
Where can one get small business loans? Sometimes it just seems that all that stands between you and your dreams of financial freedom is a few measly dollars. Well, more than a few. A few thousand more likely. What you may not know is that there is a loan program that caters to small businesses. Here are a few tips about microloans.
What is a microloan? According to the Small Business Administration (SBA), it’s a loan program to help small businesses and some not-for-profit enterprises. Loan amounts can be as much as $50,000 with the average loan totaling about $13,000. Interest rates range between 8 and 13 percent.
To obtain a microloan you won’t go directly to the SBA, however. Instead you’ll work with a specially designated intermediary lender. Each lender has its own credit requirements and most will require some form of collateral and a personal guarantee by the business owner.
Microloan proceeds can be used for the following:
• working capital: payment of day-to-day expenses
• purchase of inventory or supplies
• purchase of furniture or fixtures
• purchase of machinery or equipment
You cannot use SBA microloan funds to pay off any existing debts or to purchase real estate. If you’re interested in pursuing a microloan you need to contact your local SBA District Office who will help you locate your nearest Participating Microloan Intermediary Lender.
What you’ll need to apply for a microloan
Before applying for a microloan you’ll have to prove that you have a plan for using and repaying the loan funds. Your first step is to create a business plan. This can be a daunting task so you may want to get a little help.
Places to go for help in creating your business plan include:
• adult class at your local high school or community college district
• Small Business Development Centers (SBDC)
• Participating Microloan Intermediary Lenders
• freelance consultants and business writers
It takes quite a bit of time and effort to craft a good business plan so plan your time accordingly. Even if you aren’t able to obtain funding, a business plan is still worth the effort. It forces you to answer key questions about your business such as:
• who are your customers
• what products/services will you sell
• who is your competition
• how are you different from your competition
• financial forecasts of sales and expenses
See what I mean? Answering questions like these takes a lot of time and thought. But every business owner needs to know the answers. And each owner needs to revisit these questions every few years or so.
An example of an intermediary lender is MercyCorps Northwest which serves Oregon and Washington states. Working with small businesses that might not otherwise qualify for loans, MercyCorps offers the following services:
• small business classes
• the business plan intensive
• business counseling
• matching grants
You may also enjoy reading the blog articles at the MercyCorps site where you’ll learn from consultants and business owners who share their experiences. For example, in a June 3, 2013 post titled, “The Three F’s Every Successful Entrepreneur Should Master,” Internet marketing consultant Kent Smith offered advice to new business owners.
“Very few take the time to flesh out the ‘why’ or purposes of their business, let alone create a concrete vision for the company. Some business owners require years of reflection and even failures to clearly identify why they are in business,” Smith said.
Finding small business loans
A good way to look for sources of small business loans is with the SBA Loans and Grants Search Tool. You’ll answer a few key questions and then select what state you live in. Hit the Search button and you’ll get a list of links about loan programs, venture capital and grants.
Categories: For Business Owners