Could You Finance Your Start-Up with a Microloan?

Could You Finance Your Start-Up with a Microloan?

By Caron_Beesley, Contributor
Published: September 24, 2012 Updated: September 3, 2015

Not sure you have enough money to start a business? Before you raid your life savings or remortgage your home, you should know about some possible alternatives.

According to the Kauffmann Foundation, the average cost of starting a new business from scratch comes in at just over $30,000. Of course, the actual number depends on many factors, such as your industry, business model, and even the state where you’re located. To help you ascertain what it will cost you to start your new business, take a look at this earlier blog: How to Estimate the Cost of Starting a Business from Scratch.

If you determine that your start-up venture is going to cost you somewhere between $500 and $50,000, and your savings just aren’t enough, you might want to consider a microloan. Why? Many start-ups and new small businesses often find they may not qualify for a traditional small business bank loan.  Without a proven track-record of 3-5 years under your belt and/or established business credit, many banks simply won’t take the risk.

What is a Microloan?

So how is a microloan different? Microloans are typically offered to businesses with smaller start-up capital needs (usually less than $50,000). Unlike traditional bank business loans, funding is typically provided via community-based, nonprofit microfinance institutions.

Anyone can apply for a microloan, although these loans often favor people with low cash reserves or poor credit as well as those in rural or disadvantaged communities. However, many micro-financing institutions also offer specific micro-financing programs for women-owned businesses, environmentally responsible businesses, veterans and specific business-types.

How to Find Microloans

Microloans are available from a variety of institutions dedicated to helping entrepreneurs and start-ups, including:

o   Working capital

o   Buying inventory or supplies

o   Buying furniture or fixtures

o   Buying machinery or equipment

Local SBA Offices can provide more information about how to apply. Read more about the SBA Microloan Program and find out who’s lending.

Before You Apply for a Microloan

Don’t overlook the importance of a business plan when it comes to applying for any type of loan. Your lender will expect to see that you’ve done your research, understand your market, have a clear plan for success, and that you can demonstrate how and when you will repay the loan. SBA’s Writing a Business Plan guide can help.

You should also make sure you are aware of your credit score, and once you are up and running, take steps to establish your business credit score as soon as possible. For tips read: 6 Ways to Establish and Maintain a Healthy Credit Score for Your Startup or Small Biz.

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About the Author:

Caron Beesley


Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley