Elizabeth Wasserman

How to Secure a Microloan

 
  • A government ID -- such as a social security number or Individual Taxpayer Identification Number (ITIN).
  • Proof of income or something to demonstrate a cash flow in the business.
  • Financial statements. For established businesses, financial statements such as profit and loss statements or your QuickBooks statements. In some cases, tax returns or professional financial statements may be required.
  • What the loan will be used for. A carefully thought out description of what the loan will be used for -- detailed plans to increase business operations and profits are more likely to be approved.
  • A business plan. For startups, a detailed business plan and cash-flow projections will be required. Writing a business plan can also help pinpoint your professional goals and strategies for success.
  • Investment. The business owner will need to demonstrate his or her investment in the business; this can include cash expenditures and "sweat equity."
  • Collateral. Personal and business assets may be used to secure a loan; this can include equipment, automobiles or other assets.
  • References. You may need a list of personal and professional references.

After the loan officer has received your application, s/he will contact you to review the request.  The loan officer may also conduct a site visit to verify the business location and the nature of the business.  In the case of a home office, the loan officer may visit to verify that a home office exists, and how it is organized. Finally, the loan officer will assess any business or personal items pledged as collateral.

Closing the loan and starting to make payments

Closing Documents
After your loan has been approved, you will receive a set of closing documents from your loan officer. Be sure that you fully understand the closing documents, especially the promissory note, which details the amount of the loan, interest rate and maturity date.  It's also a good idea to ask for an amortization schedule, which lists all the payments that are due over the life of the loan.  Confirm the best way to reach your loan officer or other staff person should you have questions.

Disbursement
Many microlenders will deposit your loan directly into your bank account (and will debit loan payments from the same account). If not, you will receive a check with your loan disbursement.

Repayment
Remember, microlenders regularly report repayments to the three personal credit agencies (Experian, Equifax, TransUnion).  Late payments will appear as blemishes on your credit report, so be sure to pay on time.  Most microlenders will allow you to choose your own payment date, or at least will give you several options. Checks often take several days to clear, so don't wait until the last minute to deposit funds into your account.  One of the benefits of a microloan is that they give individuals with a less-than-perfect credit the opportunity to build and improve their credit scores.  Often, prompt payments will also qualify you for lower interest rates on subsequent loans.

Be sure to maintain communication with your loan officer or another designated staff person. Microlenders have your best interest in mind, and most will work with you to resolve issues that you have making payments, especially in the case of unavoidable hardships.  However, not communicating with your contact at the microlender could lead him or her to think that you are unwilling to pay.

"One of the great benefits is the one-on-one attention you can get from a loan consultant. A bank will hand you the application and expect you to handle it on your own," says Kozien. "There is a personal feel to the lending we do."

RELATED LINKS
Fresh Inc.: Microloans Filling a Gap
This financing option shouldn't be overlooked as a resource for smaller capital infusions.

The Kiva Connection
Microloans for all.

An Insider's Guide: Microloans   Very small businesses, often in-home and held by low income or minority owners, can borrow up to $35,000 for general business purposes.

RECOMMENDED RESOURCES
ACCION USA
A non-profit organization that offers small business loans up to $25,000.

An Insider's Guide
A non-profit organization that offers small business loans up to $25,000.

Association for Enterprise Opportunity
An association that works to advance the field of microenterprise development.

U.S. Small Business Administration
This federal government agency provides assistance to help start, build, and grow businesses. It also helps make capital available for microloans to microlenders. A list of certified microlenders is maintained on the agency's website.

 

 

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Elizabeth Wasserman is editor of Inc.'s technology website, IncTechnology.com. Based in the Washington, D.C. area, she has more than 15 years experience writing about business, technology, and politics for newspapers, magazines and websites. Her work has appeared in such publications as Congressional Quarterly, Business Week, Portfolio and Slate.