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Is a microloan right for your startup?

by | Jul 7, 2021 | Raising Capital

In New York and around the country, one of the greatest challenges of new business startups is raising capital. Banks are generally not interested in offering small loans of $50,000 or less to new business ventures, making it almost impossible for entrepreneurs to find the money they need to get started.

According to statistics from the Small Business Administration, 20% of all businesses fail in their first year. That is a staggering number, and many of those businesses likely were unsuccessful due to their not having access to capital.

Introducing, the microloan

Capital raising through a microloan could be the answer to a startup’s primary financial problems. A microloan is geared towards new businesses that need access to capital. They are usually are for no more than $50,000, and they function much like traditional loans with interest rates and monthly payments. Interest rates can be as high as 20%, and the terms are typically six years or less.

How to apply for a microloan

The Small Business Administration offers microloans, but not directly. The loans are administered through community-based lenders designated by the SBA.

If capital raising through an interest-free option is appealing, consider applying with Kiva. Their maximum loan amount is $10,000. However, their loans never bear interest. Kiva does not rely on a credit score, and their basic requirements are that borrowers are over 18 years of age, a U.S. citizen with a small business, and have a PayPal account. Applicants are required to submit a personal story about their business to request funding.

How to prepare for a microloan application

To apply for any business loan, it is important to have a well-thought-out business plan. It is critical to demonstrate to the lender that you have made a logical and workable plan to make your business profitable within a certain number of years. You also need to do your research to understand every facet of your industry to make sure you have contingency plans for common situations that could arise in your company. Consulting a business law attorney could help to identify any pitfalls in your application and could help to increase your chances of being funded through a microloan.