back-iconGo Back

What Investors Look at to Approve Your Microloan Request

By Nicolas Moore | August 16, 2022

Are you thinking about borrowing a microloan? But do you know what investors look for in a borrower?

With microlending, investors are the ones that fund the loan and therefore approve the borrowers at hand. They are always looking for critical aspects in borrowers that help determine if the microloan investing is worth it. Each requirement has a purpose, mainly to aid them in the end goal of profit and success.

You can benefit from a microloan and get approved quickly by knowing the factors investors consider before giving their approval.

How Microlending Works

Microlending works differently for investors and borrowers and has unique characteristics compared to traditional loans.

For Investors

Microloans, also known as peer-to-peer loans, are where investors directly fund the borrowers to help them with the money.

The process starts when an investor uses a peer-to-peer lending app and signs up to create a profile. 

Investors can choose how much money they want to invest and start finding borrowers that match their criteria. There is a list of borrowers they can decide to pursue by considering their credit score and the purpose of the loan.

If a small business is seeking a microloan, there might be information about it for investors to see. The business profile can provide details about how long it has been in business, the revenue, and its successes. All of this will show what the investment entails and if it has the potential to be a thriving option.

For Borrowers

Borrowers follow a similar process to investors by signing up with a peer-to-peer lending app and inputting details like credit score and other comparable factors.

They can request a loan and check the offers made by investors. The loans are typically short-term, making it a faster process than traditional bank loans. 

Different Factors

Investors are always looking at multiple factors that help them decide if they want to invest in a borrower or not.

1. Loan Amount

The first thing investors will look at when finding borrowers is the loan amount they are asking to receive.

Investors have an amount in mind they can invest, so seeing how much they need is the first important step. The loan size will determine if they can fund the whole thing or just a portion.

Investors can choose to fund a portion of one loan or spread the total investment across multiple borrowers. It helps diversify their investment portfolio and avoid some of the inherent risks of investing. If a borrower needs a large loan, they might have to seek out multiple investors to fund it entirely.

If you are a borrower who needs a larger microloan, you might need to consider help from multiple investors. Usually, you can find an investor to fund the entire thing, but you have to keep an open mind.

2. Credit Score

Once the loan amount is determined, investors will look at the credit score to see what kind of borrower you are.

The credit score is crucial for investors considering the risk they will take when investing in your loan. Investors are looking for the amount of chance they take because it helps them make sound decisions with their money.

Investors especially check borrowers’ credit scores when they invest in peer-to-peer loans since they set the fees and terms. They can charge more fees if a borrower has a low credit score and set up a short loan term to get paid back quickly.

Some peer-to-peer lending sites have a system of scoring borrowers based on their credit score and other factors. That way, they can prove themselves as a stronger candidate than their credit score alone accomplishes.

A borrower’s credit score is a massive part of investors evaluating risk and which loan to invest their money in.

3. Spending Habits

Some peer-to-peer lending apps will have you include your spending habits as a part of the approval process.

That is also shown through debt-to-income ratios or by showing how much you spend based on your income. Spending habits are essential for microloan investors to learn how a borrower uses money. If they are a wild spender, the investor can understand to take more precautions when setting the loan terms.

The best thing for borrowers is to start saving money and spending the least amount possible. It shows investors that borrowers have self-control and are trustworthy with money.

Good spending habits help secure a loan and promote better money management in a borrower’s life.

4. Purpose

Investors also consider the purpose of the loan a borrower needs.

If you have an investment opportunity that people can relate to, it will be easier to find an investor. The purpose of your loan shows the human side of their investment, which makes them feel better. When you make investors feel better about their investment, they are more willing to invest and help you.

For example, if you need a loan to help pay for school books, that is a good purpose. That will let investors feel good about their investment because they know they are helping someone in need. Then the investor can make a profit while supporting students in need of financial assistance.

Also, giving a reason allows you to pique the interest of an investor’s emotions. They might relate to you and think about when they needed help paying for school, sharing your experiences. That may convince them to invest and give you the money you need to succeed in education or anything else.

The purpose of your microloan is key to finding an investor and getting approval for the funding.

5. Return on Investment

Every investor wants to know if their investment will get a good return in the long run.

Many investors do not want to invest if they feel they will not earn a good profit. With a peer-to-peer loan, the investor is responsible for setting up the fees that the borrower will pay. Therefore, they can partially control the return on investment by setting up the costs to favor more profit.

Investors can gain a good return on investment by funding partial parts of your loan. Using small amounts to invest in your loan is great because it keeps things low-risk with better returns. Smaller pieces allow investors to get their money back quickly when the fees are designated correctly.
Creating better returns on peer-to-peer investments is a fair way to promote better lending for both parties.

Get Started With Peer-to-Peer Lending

Keep the points in mind before applying for a microloan so you can get approved quickly.

After all, peer-to-peer lending opens up many opportunities for success for borrowers and investors.

And if you’re thinking about how you should get started with P2P lending, there’s no better way than with Lendee!

Lendee is a peer-to-peer lending app that helps support borrowers and investors throughout the lending process. People can sign up and request loans to get the financial help they need when they need it. 

Perhaps, Lendee microloans allow borrowers to improve their scores by regularly paying monthly installments. 

It is an easy-to-use app that borrowers can access sitting from the comforts of their homes.

Download the Lendee mobile app now, and experience the seamless way of getting loans!