Microloans are business loans with relatively low interest rates. Generally these loans are offered to small or developing businesses with modest capital requirements and little-to-no revenue history. Microloans — as the name suggests — are smaller loans than a traditional bank loan and offer anywhere from $500 to $50,000 in business financing>.
While microloans may be just right for some businesses, they are typically best for borrowers with limited working capital and little-to-no credit history. Many times they are offered specifically for borrowers in underdeveloped communities and countries, or prioritized for minority business owners, female business owners and low-income applicants.
Features of Microloans
How Do I Get a Microloan?
Microloans are generally available through nonprofit community-based organizations that serve as intermediaries. You can find a list of them on the Small Business Administration’s website. Before you apply, there are four things you should do to prepare:
Have a detailed business plan.
Business plans are especially important for microloans compared to other forms of lending. That’s because they’re designed for newer businesses and future growth rather than the past experiences your business has had.
Make sure you can afford the monthly payments.
It’s especially important for newer businesses to take the loan as a serious responsibility. Maintaining good business credit is about as important to the growth of your business as the growth of the business itself, so make sure you don’t take a loan you can’t repay.
Clean up your credit report.
As touched upon in the previous step, your business credit report is very important, and you’ll want to make sure it looks as good as it can before applying for funding. Make sure you stay on top of any regular payments, check your credit report for errors and keep your credit utilization low.
Show a readiness to invest some of your own money in the business.
Often the business owners who take out a microloan will be asked to show that they’ve also invested in their business personally. This helps to show microloan lenders that you’re willing to do what it takes to make your business succeed.
Alternative to Microloans
Headway Capital offers a business line of credit, which is a more flexible borrowing method than a microloan. By flexible, we mean rather than receiving a fixed amount, you have a predetermined amount of credit available (your credit limit) that you can draw from when you need to cover any business expense! Because your funds are revolving, the funds you repay on your outstanding principal balance become available for use again. Check out the details of our line of credit, and see if it might be a better fit for you than a microloan!
Business line of credit
12, 18 or 24 months
No Hidden Fees
See our Rates & Terms for details
Weekly or monthly
Clear payment terms, interest does not compound, no penalty for early payoff
FAQ About Microloans
How does a microloan work?
Microloans are small business loans provided through local microloan intermediaries. The loan can be issued as a term loan or a peer-to-peer loan. The way each microloan is structured will depend on which type your business receives.
Can you make money with microloans?
How much is a microloan?
What are microloans used for?
1We always do a soft inquiry unless your credit file is restricted, in which case we would ask you to contact the credit bureau to lift the restriction. Doing so may result in a hard pull.