unable to receive financing through traditional means including banks and related financial institutions. Usually, beneficiaries of Microloan are individuals and small businesses with low credit ratings. Companies with lower capital requirements and limited operating history are also prime candidates for such loans. Loans are primarily distributed to help with working capital, acquisition of inventory and purchase of fixtures.
Microloan Program is distinguished by the fact that each lender may require borrower to sign a legal contract or provide collateral. Borrowers are required to attend training seminars to enhance their chances of utilizing funds, effectively. The maximum term of the loan is six years and interest rates may be higher than traditional loans. Borrowers are fully entitled to seek technical help and expert assistance throughout the duration of the loan. Sometimes, training continues after loan payment and is free of cost.
Before lodging an official application, potential candidates should understand the requirements of their community based lenders. It is also mandatory for applicants to ensure that they have already exhausted all other means of financial help. Moreover, a reasonable business plan is needed to ensure rapid availability of loan. The first step is to discuss your plan with an expert. All community based lending organizations offer free consulting to borrowers. There are more than 170 such organizations serving in almost every US State. According to a former director of microlending, Millard Ownes, borrowers should be able to answer basic questions before going to a Microloan Program office.
Statistics from various reputable sources suggest that the average Microloan is anywhere from $10,500 to $13,000 paid over a period of 42 months. Interest rates on these loans also vary from 8 to 13 percent. It may take only a few days for loan approval of anything less than $5000. For larger amounts, it can take as long as a month. According to the literature published by SBA, loans over $10,000 are only granted in certain circumstances. Similarly, a borrower needing $20,000 or more must demonstrate that getting such a loan at comparable rates was not possible from another source.
Applicants should be aware that SBA Microloan Program is not available everywhere. Alaska, Rhode Island, Utah and West Virginia are the only States that do not have a regional Microloan centre. Currently, outside agencies such as South Eastern Economic Development and Washington County Council serve parts of Rhode Island and West Virginia, respectively. Before proceeding, it is advisable to download free directory of Microloan participants from the SBA website.
Due to the revolving nature of these loans, credit crunch has minimum impact on the issuance of Microloans. In future, terms for borrowing may loosen up further. As US economy recovers from recession, incentives such as American Recovery & Reinvestment Act will help bolster small business industry. Recently, the government has granted $50 million for loans and an additional $24 for technical assistance to Small Business Administration. Hopefully, SBA Microloan Program will help US small businesses retain top spot as nation’s number one private sector job creator.