What to Know About Microloans
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
What Is a Microloan?
Working capital Inventory or supplies Furniture or fixtures Machinery or equipment Seasonal expenses
Common Microloan Rates and Terms
Loan amount How funds will be used Specific lender requirements Needs of the borrower
Types of Microlenders
Peer-to-Peer (P2P) Microlenders
SoLo Funds: Their goal is to offer affordable access to loans by connecting borrowers and lenders on their mobile marketplace. Borrowers set their own repayment terms and lenders get to diversify their loan portfolios. Kiva: A form of crowdfunding in which lenders can support borrowers from around the world who can’t otherwise access capital to support their business. Borrowers are often artisans, students, shopkeepers, or restaurant owners.
Community Development Banks Community Development Credit Unions Community Development Loan Funds Community Development Venture Capital Funds LiftFund: Provides credit and services to those who don’t have access to funding from commercial sources like a traditional bank. Accion: Partners with three certified CDFIs to serve small businesses in communities across the U.S. Grameen America: Committed to supporting entrepreneurial women and their communities Opportunity Fund: Mission to help underserved small businesses, particularly those owned by low- and moderate-income immigrants, people of color, and women.
Online and Alternative Lenders
Crowdfunding sites Online small business lenders Angel investors Venture capitalists Friends and family
Pros and Cons of Microlending
How Do I Get a Microloan?
1. Creating a business plan
An executive summary, which is a high-level overview of your company’s: Product or service offering Leadership team Mission statement Goals for the future Growth plan A company description, which should include details on: The problem your product or service solves, and for whom What differentiates you from the competition Your location and team members Market research, to include: What the competition is doing well Where the competition is lacking, and how you can fill those gaps The trends and themes in your industry Deeper insights on your target audience Your company structure, including: How your business is legally structured (e.g. LLC or sole proprietorship; S or C corporation) An organizational chart of all the team members, outlining their reporting and managing duties Details on your product or service, like: What’s currently being done for research and development What copyrights or patents you hold The lifecycle of your product or service Marketing and sales strategies, which should: Coincide with your short- and long-term financial goals Be as specific as possible, listing individual steps from customer attraction to retention A funding request, which should include specifics on: How much money you need How you intend to spend the money Desired repayment terms Whether you want to offer equity or debt Your financing projections, which should include: Projected income statements, balance sheets, cash flow statements, and capital expenditure budgets for the next five years (include charts and graphs) Correlations between your funding request and marketing and sales strategies Income statements, balance sheets, and cash flow statements for the last three to five years, if possible An appendix, where you can include any supplemental documents to support your plan
2. Determining eligibility
Be the sole business owner or co-owner of a for-profit small business Have no recent bankruptcies, late payments, outstanding tax liens, or foreclosures Have the ability to repay the loan with current income/revenue Proof of good payment history with creditors Have a clear, strong business plan for the future Meet any special demographic requirements (e.g. veteran, minority, low-income), when applicable
3. Choosing a microlender
4. Gathering documents and information
Government-issued ID Proof of income Business and personal financial statements How you’ll use the microloan A detailed business plan Proof of collateral, if applicable A list of references who can vouch for you personally and professionally
Lenders Who Offer Microloans
Alternatives to Microloans
Commercial Real Estate Loan
Working Capital Loan
Merchant Cash Advance
Business Line of Credit
Compare Microlenders with Lantern Credit
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