- What are microloans for small businesses?
- How can you use small business microloans?
- How to get the best small business microloan terms?
Q: What are small business microloans? Should I get one for my business?
A: A small business microloan is a loan that is less than or equal to $50,000 and, depending on your business credit, comes with relatively favorable terms. Whether or not your business should apply for one of these loans depends on what you hope to accomplish. If you need access to capital, extra funds to make it through times of economic downturn, or are having trouble with other small business loans, then a small business microloan is the way to go.
If you’re a functioning member of society, chances are you’ve had your credit score run at least a few times in the past.
Securing loans, getting new credit cards, and applying for leases are just a few areas that will require individual credit checks.
You’ll eventually need to secure a loan or line of credit when running a business. Where personal credit affects individuals’ ability to get loans, business credit affects a business’s ability to get loans and the rates they’ll pay on this credit. Small business microloans can help build credit and secure funds for advancement.
For most businesses, getting a loan or line of credit is just par for the course. In 2021, approximately $44.8 billion in funds were delivered to various small businesses.
You’ll eventually need to secure a loan or line of credit when running a business.
Because microloans are designed to help small businesses, startups, and fledgling entrepreneurs, the rates are reasonable. Per the Small Business Administration (SBA), the terms can last up to six years.
Businesses use these microloans to get through periods of economic depression, access capital, and occasionally introduce new offerings.
Other small business loans can be extraordinarily predatory, and finding a secure line of credit with favorable terms can be long and arduous.
In this article, we’ll discuss what a small business microloan is, how businesses can effectively use microloans, how to secure the best terms for your loans, and the best ways to build business credit so you can take advantage of small business microloans.
- What are microloans for small businesses?
- How can you use small business microloans?
- How to get the best small business microloan terms?
- Building business credit to take advantage of small business microloans.
What are microloans for small businesses?
A microloan, as you might imagine, is a small loan. People take out microloans for all manner of investments and consumer goods.
The definition of a microloan for businesses is a bit different. In the context of a small business, a microloan typically refers to a loan of less than $50,000.
Small business loans explained
Microloans exist for a few key reasons. Below, we’ll look at two of the most common uses of small business microloans and the situations in which businesses might need them.
Access to capital
A small business microloan can be used to give businesses access to the capital they need to expand their infrastructure and capture new revenue.
Because you can’t effectively onboard high volumes of new customers without a robust business infrastructure, small business microloans give business owners the chance to build out their ecosystems without the painful back and forth of increasing advertising campaigns, securing customers, building out infrastructure, and ad infinitum.
Short-term bridge
Small business microloans are often a way for businesses to make it through economic distress. During periods of economic slowdown, businesses may need to cover costs to get them through to the other side when they can turn profitable again.
Microloans help a business get through these periods without being forced to shut its doors.
Extraneous uses
Outside of these two main categories, small business microloans can be used for anything your business needs. Granted, it isn’t always wise to take on additional debt, but if you’re in a pinch and need to refresh inventory or secure new equipment and supplies, a microloan is likely your best bet.
It should be noted that according to the U.S. Small Business Administration, microloans cannot be used for real estate purchases or in the payment of existing debt.
Are there any small business loans available?
The most common way to secure small business microloans is by using the Small Business Administration’s website to find a lender near your business.
First, navigate to SBA.gov. After doing so, you will click on the dropdown menu at the top right, click “Funding Programs,” then click on the “Loans” box.
Now, you can scroll down a little to find the different kinds of loans provided. After you’ve determined that a small business microloan is right for you, it’s time to search for lenders in your business’s area.
Using the SBA list of lenders is simple. Just look up the state where your business is located and look at the authorized lenders you can now contact about securing a loan.
Now that you’re able to see a list of authorized lenders, it’s time to learn how to use microloans to effectively grow your business.
How to use microloans to grow your business
As with any loan, you want to be careful using microloans. Taking out loans without a specific plan can quickly lead to lost money, slowed growth, and sometimes even complete failure for your business.
A detail-oriented plan goes a long way, and before you take out any kind of loan for your business, you should make sure that you know exactly how the money will be spent and the expected return.
With proper planning and execution, you can use microloans to grow faster and make your business more successful. Below, we’ve documented a few actionable ways to use small business microloans to help your business thrive.
- Immediate action opportunities
- Long-term savings
- Attractive terms
Immediate action opportunities
One of the best ways to use small business microloans is for market opportunities that require immediate action.
If you find a short-term opportunity you wouldn’t be able to take without extra funding, that is when it makes sense to take out a small business microloan. If the opportunity is solid, you’ll likely make money back and solidify yourself in a new market.
These opportunities could be raw materials suddenly dropping in price for a small window of time or the sudden chance to acquire proprietary materials or patents. There’s no set opportunity that you should be waiting for. Instead, keep your eyes open and your business ready to strike while the iron is hot.
Read more: Your Shortcut to New Success: How to Buy a Small Business
Long-term savings
A microloan should be taken out if it will save your business more money in the long run.
For example, if you can’t cover your employee payroll, taking a loan can save you from serious legal penalties that may exceed the loan’s cost. Similarly, if suppliers or distributors are breathing down your neck, taking a microloan to prevent your business from burning bridges is probably a good idea.
In these instances, a microloan is a much better option and can bridge the gap so you can resume making a profit. This use-case is essentially the last resort for your business.
Although, if things are looking bad and the microloan isn’t going to cover your expenses, and there are no increased profits, it’s sometimes a better bet to take the loss before adding more debt to your balance sheet.
Attractive terms
The final consideration is finding good loan terms. Easily secured loans with changing interest rates can get out of hand fast, and it can be difficult for business owners to find loans that aren’t predatory.
You should never take predatory loan terms, as the interest rates can quickly build and leave your business hopeless if your wager doesn’t pay off.
That said, it’s always a smart idea to compare the interest rates on the microloan to the revenue you’ll make in the same period. For example, if your business can take a loan for $50,000 with a 6% interest rate, but you expect to make 15% of your loan amount during the same period, there’s genuinely no reason not to secure the funding.
As you search for small business microloans and ways to use them to scale your business, keep in mind that the U.S. inflation rate has been exponentially growing over the past couple of years and that these concerns don’t seem to be going anywhere.
If inflation continues to rise, securing a microloan and paying it back when money is cheaper is a safe and easy bet. Still, on the flip side, if inflation drops significantly, you’ll be paying back money worth more than you initially borrowed.
Regardless of your decisions, timing the market rarely works well for anyone.
Create an actionable business plan for your microloan and stick to it. You’ll have much better luck if your small business loans are used actively rather than reactively.
The best way to access beneficial microloans
Getting agreeable loan terms, or any loan terms at all, comes down to having small business credit.
Just like an individual, your business has a credit score. The act of building that credit score shows lenders that you’re trustworthy, granting you access to better loan terms.
Small business micro-lending is a business like any other, and lenders want a return on their investment.
Business owners often worry that previous mistakes will prevent them from securing small business microloans. While frustrating and stressful, bad credit won’t necessarily prevent your business from securing a loan.
That said, many businesses have no business credit. They try to avoid taking loans and, as a result, have no accumulated credit for bureaus to report.
Luckily, there are easy, efficient ways to build your business credit without taking unfavorable loans. We’ve looked at three small business credit services that can help your business build its credit safely, keep reading to learn the ins and outs of these companies.
- CreditSuite
- eCredible
- Nav
CreditSuite
Launched in 2014, CreditSuite was created to help small business owners and entrepreneurs fix their business credit and get access to funding.
On the front page of their website, business owners can take an assessment that determines whether or not they’re ready for financing and how much funding they can handle. They also suggest ways to increase small business credit and, if it’s high enough, what money you can access immediately.
This assessment is one of its best features and typically costs upwards of $200.00 if done elsewhere.
With CreditSuite’s Business Credit Builder, business owners can determine the areas that need extra attention and start working towards building credit in these areas immediately.
eCredable
eCredable builds business credit by linking all of your company’s applicable utility accounts to your EIN. Because so many businesses are without credit, using these utility accounts will quickly improve your business’s credit score without forcing you to do anything different.
eCredable also provides a service they’ve named BusinessLift that does the same connecting accounts but promises a raised credit report in just a few days.
With a $49.95 setup fee followed by payments of $9.95 a month, eCredable is a cost-effective way to raise your business credit without being forced to jump through countless hoops.
Nav
Nav is another small business credit-building tool that connects business owners with financiers.
Nav employs an open marketplace that allows business owners to connect with multiple financiers before deciding on the loan with the best rates. Additionally, their microloan page is filled with relevant information and high-quality lenders.
Per their website, small business owners that use Nav’s marketplace are 3.5 times more likely to get approved for their loans. In many ways, Nav functions as a dating app for small business owners and financiers looking to connect.
Regardless of the slight variations in methodology, each service works by connecting your business accounts. From there, they automatically report your business transactions to the bureaus, allowing you to build credit without taking loans.
This, in turn, gives you access to microloans when you need them, allowing you to make the most of business opportunities and build a safety net for your business if hard times hit.
Even if you don’t need an immediate microloan, building business credit while things are good is always better than waiting until your business is in trouble.
While you might not need small business microloans at the moment, knowing that you have access to a relatively cheap $50,000 is a great way to reduce stress and focus on growth.
Building business credit to take advantage of small business microloans
Microloans are small business loans for up to or less than $50,000.
These loans allow businesses to capitalize on brief opportunities and bridge the gap during times of struggle.
Building your business credit is crucial to accessing the microloans you need to make the most of your business.
Building business credit can be difficult, especially if you’re in a position where your business is digging itself out of a hole.
The first step to improving your business credit will always be taking a detailed look at your business and its operations, identifying weak areas and extraneous expenses, then fixing any problem areas and lowering your operational costs.
If you’re looking to lower your operational costs to build business credit, Alliance Virtual Offices has several digital solutions available for businesses working towards growth.
Office space was a massive money sink for small business owners in the past. Spending up to 20% of your business’s revenue wasn’t uncommon for individuals using commercial space.
Thankfully, Alliance’s Virtual Offices are a cost-effective way to significantly lower operational expenses without giving up the amenities provided by traditional office space.
Not only do our offices provide a central hub for your business’s virtual operations, but with locations in every state, access to physical workspace, and professional and well-known addresses, our Virtual Offices work for you.
With a Virtual Office, your monthly rent costs will decrease dramatically, allowing your business to reinvest that money into further building your business’s infrastructure. Remember, a sound infrastructure is the first step to building better business credit.
In addition to our Virtual Offices, Alliance provides helpful and friendly Live Receptionists that can be used to give business owners more time to focus on their core operations.
Our Live Receptionists provide business owners with a reprieve from the constant ringing of the phone. All too often, business owners trying to handle too many things at once will accidentally offend a calling customer, usually through inattention.
Rather than retaining a full-time or part-time receptionist, consider our service’s benefits. Not only do our Live Receptionists cost significantly less than a traditional receptionist, but the onboarding process is guaranteed to be simpler than training a new employee.
Once you’ve secured a Live Receptionist, you no longer have to worry about the phone. Our receptionists personally answer and screen every call, providing a friendly and professional voice to potential customers calling for information.
Small business microloans are an incredible tool that entrepreneurs can use in times of need. Even though bad credit isn’t always going to prevent your business from getting the loan, securing favorable terms that won’t hinder your business long-term requires decent business credit.
Further reading
- SBA Microloans: What Businesses Qualify and How to Apply
- Microloans: What You Need to Know
- Your Shortcut to New Success: How to Buy a Small Business
- Price Breakdown: Top Answering Services for Small Businesses
Whether you’re an established entrepreneur looking to expand operations through small business microloans or a fledgling entrepreneur hoping to get your big idea off the ground – Alliance Virtual Offices is here to help.
Contact us today to see how we can help your business improve its credit, cut operational costs, and take on the digital-first economy.
