Microloans are a hidden gem in the world of small business financing. Many aspiring entrepreneurs have no idea that the Small Business Administration recommends new business owners start with a microloan when attempting to obtain small business financing. Although small, (most microloans only go up to $50,000 with the average amount being between $13,000 and $20,000), microloans have a huge positive impact on small businesses, especially startups. According to an ongoing study conducted by four college professors, “Business Microloans for U.S. Subprime Borrowers”, startups benefit greatly from microloans. The study found that startup business owners who used a microloan (obtained through Accion Texas), to grow their business were able to sustain their business, hire more employees, and increase revenues! The study also found that:
- Approximately 30.1% of startup business owners who received a microloan through Accion Texas between 2006 and 2011, were still in business as of May 2012. This is very good because it’s further proof that microloans and small business financing can greatly contribute to the success of startup businesses.
- Approximately 41% in sales growth was experienced by startup business owners who received a microloan from Accion Texas between 2006 and 2011. Sales growth after receiving the microloan is another example of how the success of a small business greatly relies on receiving microloans and small business financing and using the funds in the most effective way possible.
- The startup business owners who received a microloan from Accion Texas between 2006 and 2011 were able to double their workforce. This is further proof that the funding of small businesses contribute to the growth of employment opportunities in this country.
Who Benefits the Most from This Type of Small Business Financing?
Although microloans are available to entrepreneurs of all races and backgrounds, according to the “Business Microloans for U.S. Subprime Borrowers” study, minority entrepreneurs (who are educated) tend to benefit from them the most. The study reported that more than 22% of small businesses are owned by minorities (as of 2011) and minority business ownership grew to 30% during 2000-2011. Additionally, the report found that most startup business owners who received microloans through Accion Texas during 2006 – 2011 had less than perfect credit. Microloans have proven to be a viable small business financing option for aspiring entrepreneurs and existing small business owners with bad credit. In fact, most microloan lenders have fairly low minimum credit score requirements that can range in the lower to mid 500’s. Accion US has minimum credit score requirements of 575. That’s low compared to traditional lenders that require credit scores in the upper 700’s or better to get approved for small business financing.
Don’t Know Where to Apply for Microloans? Get Help!
There are many resources you can use to get help with applying for a microloan. For starters you can contact your Local SBA District Office to get a list of microloan lenders in your area. You can also visit the SBA website to get a list of the microloan lenders in your area and contact the lenders directly. Lastly, check out Accion US. They are one of the largest (if the not the largest) direct microloan lenders in the United States.
You’ll need to be prepared to get a microloan and have a business plan with 3 years of financial projections before you apply. If you don’t have that, you should also check out QT Business Solutions (a microloan preparation service provider). QT can help you prepare your microloan preparation package (which will include your business plan and financial projections) and help you apply to microloan lenders in your area.