Why do startups turn to microloans?

Why do startups turn to microloans?

 If you’re planning to start a business, you probably know that finding capital to fund that business can be difficult.  Especially if the amount you need is relatively small.  For many banks, the time and effort involved in preparing and processing these loans are not worth the risk.  It is also difficult for startups to convince a lender that the business can support a loan because there is no track record.  Here are why many startups turn to microloans.   

Microloans offer first-time business owners the funds needed to get started.  Typically, microloans are loans up to $50,000 and are used to help cover startup costs and other expenses.  These loans are generally small, so approval is not solely based on credit score or collateral.  A big concentration is with the strength of the entrepreneur’s business idea and if they have a viable plan.  A good way to increase you chances of approval are: 

  • Focusing on the who, what, where, when, why and how of your business 
  • Knowing your target customers, your competitors and develop your plan of action 
  • Creating a realistic budget 
  • Knowing your financial situation (Personal & Business) 
  • Explaining your business idea in detail 

Startups can find it difficult to obtain funding from a bank for they often lack the credit history or the amount they ask for is simply too small for a bank to effectively process.  Microloans can be especially helpful because the funds can be used for any legitimate business purpose such as working capital, equipment and machinery purchase or additional inventory.  Startups traditionally have a hard time getting financing but at the Rising Tide Community Loan Fund we love helping new business owners get started.   

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