What You Should Know About Applying for a Microloan
You can request a microloan from different organizations — peer-to-peer lending platforms, non-profit companies, and so on. This choice will surely tune the way how your application and preparations for it unfold. In this guide, enthusiasts will be able to strategize this endeavor and ensure they have done their best for the most lucrative result. Stay tuned for more!
1. Develop a Business Plan
You will have to treat a potential microlender as your sponsor, showcasing your talents and demonstrating your vision. Money-spending conditions are flexible, but the target platform is the one deciding your fate. While qualifying for a microloan, a well-written and detailed business plan will help you stand out among other applicants and win several bonus points — lower interest rates, for instance.
2. Work on Your Credit History
Microloans allow for candidates with bad credit or without any to be eligible candidates. Still, conditions you can obtain this way will obviously be worse than those available to applicants with better credit scores. That’s why it is important to improve your achievements and strengthen your score before completing the application.
3. Conduct Your Market Research and Compare Loan Conditions and Eligibility Requirements
It is crucial to thoroughly analyze the terms provided by microlenders in the market to see what offer suits your needs and repayment plans the most. Here are a few must-have decision-making criteria to take into account:
Interest rates — while minimum and maximum loan sums are frequently within the same ranges, that’s not true for interest rates. They are defined individually and may vary a lot. With lower ones, you will benefit from a more cost-efficient deal for your business.
Loan amounts — from $25 to $50,000 and above, the sums to request from microlending service providers are drastically different. Your task is to ensure that the target company can satisfy your request.
Repayment terms — although microloans are appreciated for more frequent repayments of smaller sums, it is essential to calculate how valuable the target offer is, given its total interest to pay in the long run.
Eligibility criteria — your age, citizenship, credit history, and business vintage are just a few parameters to define your success rate as an applicant for a microloan in the market.
Collateral requirements — they aren’t always the case, but you should be careful to double-check the company’s terms for the availability of unsecured loans.
To make things easier to grasp when you need to “consume” so much data, feel free to create a comparison chart. Consulting with advisors will also be an effective strategy. Of course, checking testimonials to prove the offer’s validity and ongoing microlender support is important.
4. Collect Tax and Other Financial Documents
Be sure to have all of the appropriate financial and tax paperwork. When applying for a microloan, this foundation will showcase your endeavor’s strength and capacity to fulfill the offer’s conditions and repay the loan to the full and on time. The list of documents usually falls into these major categories:
Recent tax documents — collect the latest returns for your small business or startup to prove your compliance with the in-market regulations.
Financial statements — first and foremost, take care of your cash flow statement. It will represent your cash management strategies and abilities to meet the financial obligations of the lender. Secondly, work on your profit and loss statement to illustrate your company’s performance. In several cases, microlenders expect the applicant’s monthly turnover to reach a certain range — $10,000, for example. Thirdly, prepare a balance sheet, describing your brand’s equity, liabilities, assets, and more.
Additional documentation — credit reports, accounts receivable reports, and bank statements, to mention a few, will come in handy to provide valuable insights about your money management skills.
5. Submit Your Documents and Wait for Approval
Once the lender is chosen and all the preparations are over, you will need to see what their decision is going to be. If you comply with all the requirements, the chances for a refusal are close to none. However, things alter if your profile isn’t ideal.
While microlending allows people to obtain financial support even when their credit scores are bad or absent at all, it opens the room for negotiations. The target service provider can customize the offer’s terms to secure the deal, but it is more likely to turn less beneficial for the applicant.
As for the waiting period, it varies as well. Some companies strive to minimize it and let you know about their approval within a day or two. Still, waiting for weeks isn’t a rare scenario in the market. You will surely be notified, so reaching out to the lender every now and then isn’t a recommended tactic.
Key Takeaways
Your success depends on your preparations. Microlending presents easier eligibility criteria to comply with, but it doesn’t mean the challenge is a breeze for everyone. In most cases, this offer applies to small businesses with certain experience and turnover in the market. Compare microlenders’ offers to find out the top-notch one where you are as close to being an ideal applicant as possible.
