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Advantages and disadvantages of Micro-Loans

Micro-loans are usually for $5,000 to $35,000. The loans are often available for start-up businesses.

Advantages:

  • The loan process is fast.
  • Loan funds are available for start-up business use.
  • Minimal required documents: a short business plan and income tax returns (business and personal)
  • The loan is usually combined with business training and technical assistance.
Disadvantages:
  • Average loan amount is $13,000, which usually is not enough to fund a business
  • If funds are used for operating deficits, it makes it harder to become profitable - because the business must pay for operating expenses plus the loan.

Where to find micro-lenders

Micro-lenders can be found through at least 5 sources:
  • SBA approved micro-lenders
  • Check the information in the Funding section of the Tools for local micro-loan programs
  • Local CDBG loan funds
    • Some communities have used part of their Community Development Block Grants for a business loan program. Contact your city economic development department for information.
  • Local banks and credit unions with small business focus
    • Contact your Small Business Development Center to request a list of local micro-lenders. The SBDC will probably ask that you meet with them first to prepare a business plan. Working with the SBDC will give you a more favorable standing with the micro-lender.
  • Accion Microloans
    • As a last resort (i.e. you have to exhaust all other sources first), Accion Microloans funds micro-loans.
Ongoing Responsibilities

  • Micro-loans usually require some training or one-on-one consulting to strengthen your business skills.
  • Many micro-loans require you to send quarterly financial reports to the lender.