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The Pros and Cons of Using a Microloan to Finance Your Business

Is your business in need of financing? While you can always apply for a traditional loan from a bank or alternative lender, you may want to consider a microloan. Microloans live up to their namesake by consisting of small amounts of money. Assuming your business doesn’t need to borrow a substantial amount of money, a microloan might be a viable alternative to a traditional loan. There are both pros and cons of using a microloan, however.

The Pros and Cons of Using a Microloan to Finance Your Business

Pro: Low Interest Rates

Microloans typically have low interest rates. Across all microloans, the average interest rate is about 7% to 8%. The U.S. Small Business Administration (SBA) offers microloans as well. For SBA microloans, the average interest rate is about 6.5%.

Pro: Little or No Collateral

Another benefit of using a microloan to finance your business is the simple fact that they require little or no collateral. With a traditional loan, you’ll probably have to provide the lender with substantial collateral. Microloans are easier to obtain because they require little or no collateral.

Pro: Fast Financing

A microloan offers a fast way to secure financing. Unlike with a traditional loan, you won’t have to wait for months to get approved. The application process is faster for microloans. Assuming you meet the necessary requirements, most lenders will approve your application in less than two weeks.

Con: Small Amounts

One of the biggest drawbacks of using a microloan involves its size. As their name suggests, microloans are smaller than traditional loans. While traditional loans can exceed $1 million, microloans are typically capped at about $50,000. Depending on your business’s financing needs, a microloan may not suffice. If your business needs more than $50,000, a traditional loan may be a better financing solution.

Con: Short Repayment Terms

Another drawback of using a microloan to finance your business is a short repayment term. The repayment term, also known simply as the term, is the length of time for which a loan must be repaid. Traditional loans can have a repayment term of over five years. In comparison, microloans often have a repayment term of one year or less.

Con: Restrictions

You may discover that some microloans come with restrictions. In other words, the lender may require you to them for specific purpose, or the lender may prohibit you from using them for other purposes.

This article was brought to you by Intrepid Private Capital Group – A Global Financial Services Company. For more information on startup and business funding, or to complete a funding application, please visit our website.

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Intrepid Private Capital Group • July 15, 2021

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