Micro Loans

Micro loans are typically given to people as an impetus to start their own business, for already established small businesses as well as for consolidating and boosting micro-enterprises. Thus, micro financing as it is popularly called is typically the extension of very small loans and reserved for the unemployed, poor entrepreneurs and people otherwise not considered bankable. These are people who usually lack the requisite collateral for a conventional loan, steady employment and a certifiable credit history. Micro financing, besides micro loans include financial services such as savings, micro insurance and financial instruments.

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Micro loans can be used for several purposes including working capital, stocks, purchase of office furniture and fixtures, supplies, plant, machinery and equipment.

The essential aspects of a micro loan are as follows

Micro-loans are under $35,000 with the average amount being $200. The maximum term for a micro loan is six years.

Micro Loans are relatively easy to obtain compared to traditional bank loans.

Micro loans are given by community lenders to the borrowers after checking and evaluating credit histories of such persons. The community lenders in turn receive the funds from the SBA for the explicit purpose of extending such loans.

Most of the community lenders prefer to distribute micro loans in their own communities; hence it is preferable that the borrower is located near such a non-profit community lender.

It is requisite for all micro loans to have some form of collateral and personal guarantee of the business owner.

Moreover, to obtain a micro loan, the small business owners applying for said finance will have to fulfill training and business planning requirements before a loan is approved.

Projects should typically have skill enhancement elements to qualify for a micro loan. The kinds of projects that are financed by micro loans are:

Projects aimed at creating or improving self-sustaining productive employment for local low-income level communities

Projects that promote employment in private, self-employed businesses involving one person or in micro-enterprises consisting of several beneficiaries

Projects that take in a set of personal self-employment micro-projects and/or micro-enterprises.

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