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4 Reasons Why You Should Consider Microlending to Fund Your Start-up

By Mini Saha | January 28, 2022

What are some quick ways to get funding for your start-up with no business history? Microlending is one of the more accessible funding sources among other financing solutions available to start-ups and small business owners. This blog discusses the key reasons for considering microlending to fund your start-up.

What is microlending?

It is the practice of giving small loans to entrepreneurs and small business owners in need of funds, and the amount can range from 0-to,000. Start-ups generally find it challenging to get approved for traditional loans, which is not the case with microlending since it is a much better alternative and easier to get.

Who uses microlending?

Microloans help small business owners who:

  • Have no access to sufficient funding.
  • Can’t get funding from traditional financial institutions due to low credit scores.

If you want to launch your start-up but don’t have the best credit score to obtain funds from traditional banks and other financial institutions, microloans might work right for you. They are considerably easier to get since microlenders generally have less restrictive requirements.

Apps to borrow money, such as Lendee, give you instant access to a network of lenders who’ll be willing to lend you the money you need to fund your start-up.

Non-profit organizations or private investors are the ones that generally offer microloans to specific types of borrowers, such as small business owners from minority groups or women.

Microlending clients are those that are typically self-employed or household-based entrepreneurs. Besides, it may include small businesses, such as cafes, auto repair shops, small retail shops, local services (spas and salons), and many more.

Types of businesses or situations in which microloans may be a suitable option.

Businesses with few or no employees

Microloans are typically offered to sole proprietors or entrepreneurs with few or no employees as they may find it difficult to get financial help from traditional lending institutions.

Businesses with small financing needs

You can consider borrowing a small amount of money from a microlender even though you already have a steady business history and a strong credit rating. A microloan allows you to borrow just enough money to cover your expenses without burdening yourself. Additionally, it is payable in equal monthly installments, allowing you to budget well in advance.

Top 4 reasons why you should consider microlending to fund your start-up.

1. Helps build credit

Microloans offer a starting point for small business owners wanting to build or rebuild their credit history. Many applicants don’t have any collateral bigger businesses use to get a loan. They also have little to no credit history.

Working with a microlender allows you to build your credit. How does it work? While you pay off your microloan, the microlender reports its payment experience to the credit bureaus. In return, this helps build a positive credit history and increase your creditworthiness in the eyes of other lenders.

Borrowers can qualify for larger loans from traditional lenders after paying their microloans in full.

2. Saves time

Time plays a crucial role for small business owners requiring working capital. Traditional loans backed by the Small Business Administration (SBA) and other financial institutions can take several weeks or months. However, microloans may take as little as 14 days to come through.

It is important to remember that each microlender has different terms and conditions, interest rates, lending limits, and timelines. Make sure to weigh your options carefully, and go with the one most suitable for your current situation. Trusted apps to borrow money, such as Lendee, can make it easier for you to receive a loan at a fair rate.

3. Flexible requirements

One of the plausible reasons to consider a microlender to fund your start-up is flexible loan requirements.

Most microlenders are flexible with their underwriting criteria and require less documentation. They look at your business idea as a whole while deciding whether they should consider your loan application.

While most traditional lenders will look at your stellar business history, credit score, and collateral before approving a loan, microlenders will consider other factors, such as a personal guarantee or personal collateral.

Yet, remember, if you’re a start-up and don’t have any business history, you must have a strong business plan in place to convince a microlender to take a chance on your company.

4. Business training

The SBA requires some microlenders to provide business and technical training to potential borrowers. Borrowers must complete this training before their application is accepted.

This training is beneficial in many ways for entrepreneurs, helping them to avoid making costly mistakes and succeed in repaying their microloans while building a business.

Most microlenders offer workshops and one-on-one mentoring on a broad range of topics, even though small entrepreneurs aren’t required to complete training to get approved for a microloan. It is an excellent opportunity to gain valuable knowledge that may be helpful sooner or later.

Eligibility requirements

It may differ from one microlender to another. However, small businesses and start-ups must fulfill the following prerequisites:

  • Should be located in an area served by the microlender
  • Have adequate income to support repayment of the loan
  • Display good payment history with other (personal or business) creditors
  • Can offer personal collateral or a personal guarantee

Most microlenders don’t require many requirements when it comes to the age of the business, the business credit score, or even the applicant’s personal credit score. So, start-ups looking to get funds can benefit in many ways by taking help from microlenders.

You don’t need a perfect credit score to qualify for a microloan since microlenders essentially consider your credit history in the context of your entire application. Although, you could disqualify due to issues surrounding bankruptcies, recent delinquent payments, and outstanding tax liens.

The bottom line

Microloans can be game-changing for start-ups, small business owners, and underserved entrepreneurs. Consider going to microlenders if you’ve been unsuccessful at getting funds from conventional financial institutions or other SBA loan programs.

You can count on microloans when you need them the most. Lendee gives you the power to choose what’s best for your start-up and provides flexible payback options for a stress-free experience with microloans.

Download the Lendee app today, sign up with just a few clicks, and secure a microloan from the comforts of your home.