The biggest challenge for entrepreneurs today is attracting investors. When a business is being set up at a large scale, attracting investors is not particularly challenging. Things are different and challenging for small-scale businesses. In the struggle of finding the right investors, the world loses some great business ideas. Even genius entrepreneurs do not get a chance to prove themselves to the world.
Microloans are helping small-scale entrepreneurs jump-start their businesses since 1977. It is the perfect help young entrepreneurs need, and it paves the way for them to take their small businesses to a higher level of success. It is one of the major factors that have encouraged entrepreneurship and improved economic growth.
What are microloans?
Microloans are short-term loans, subject to a small interest rate, that support new startups, small-scale businesses, and self-employed individuals. The range of microloans lies within $50,000. It is a great option for entrepreneurs in need of a small loan that banks are unwilling to provide. Microloans are easy to get for entrepreneurs in low-income communities or countries and female entrepreneurs. The conditions to qualify for a microloan are not as stringent as other business loans. The only eligibility condition to get microloans is to have a registered business.
How to get a microloan?
Entrepreneurs who are willing to get a microloan must follow this step-by-step guide. It provides a simple and easy way to get microloans.
Step 1: A finalized business plan.
The first thing a microloan lender will look at is the business plan. A business plan must be extremely attractive as it is what builds the first impression. The strength and the potential to grow are evaluated based on a business plan. Therefore, it must be strong and very impressive. The most important information an entrepreneur needs to include in the business plan is a detailed goal of the business; how will it generate revenue, a practical strategy, all the entities that the business’s functionality will rely on, and a detailed marketing strategy. It is not complicated for people who have a clear image of what they want to achieve. It is important to dedicate a healthy amount of time and effort to draw up the finalized business plan.
Step 2: Offering a collateral guarantee.
Generally, business owners with little or poor credit history get microloans. It is a major reason why lenders ask entrepreneurs to provide collateral or personal guarantee. A collateral guarantee is when a borrower must provide a guarantee through valuable personal property. It can be one’s home, real estate property, or any other valued possession. If a borrower fails to repay the loan, the lender has the right to sell the collateral and cover its costs. If an individual does not have such valuable property, the lenders will ask for a personal guarantee. With a personal guarantee, if a borrower fails to repay, the lender will seize the personal savings or any other assets found valuable at the time.
Applicants of microloans should know that the lenders, after selling the property, take the amount equal to the sum of the principal amount and the interest. The rest is for the borrower. Also, it is important to discuss the matters of collateral guarantee if there is more than one owner of the business.
Step 3: Willingness to invest
The microloan lenders will not provide a loan if the entrepreneur does not show their earnest efforts. A lender expects to see an applicant giving their best to the business with time, effort, and of course, money. An entrepreneur must set aside a small amount of their savings for investing in the business. It works perfectly in convincing the lender that an entrepreneur is willing to invest everything in the business.
It becomes easy for small businesses and entrepreneurs to get microloans by following this 3-step guide. The lenders evaluate the entrepreneurs who have applied for the loan. Only the entrepreneurs extremely dedicated and passionate about growing their business qualify for the loan.
Traditional banks are the first option that comes to mind when a business requires a loan. If a bank approves the loan request, it is great news for businesses. But mostly, all loan applications for an amount lower than $50,000 get rejected. That is why microloans are the best option for small businesses or entrepreneurs who need an exceedingly small amount to start their businesses.
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