Who has not needed a little extra money to be able to cover a repair, a little unforeseen event or even to start a business? For all these and many more situations, we can use a credit card or consider asking for a microloan. We have all seen tempting commercials for microloans on television; But what do we know about this financial product?
The popularity of microloans has increased in recent years as a new form of short-term financing due to many of the benefits they offer.
One of the most obvious advantages is the simplicity with which you can request them: from home, online, and without giving explanations to anyone. Besides, in a matter of 15 minutes, you can enjoy the amount you have requested.
On the other hand, repaying the borrowed money is very simple too.
One of the great myths of microloans is that they are expensive in the end. But with a requested amount that fits your needs and trying to return the money as soon as possible, they can get us out of a tight spot and even save us.
For example, if you find a television on sale in January and you think that it is not the best time to buy it, you may be wrong.
By asking for a microloan to be able to buy the television when it is on sale, you continue to save money because its price will be higher when the sales are over. And the same with many of the trips that appear sporadically offered on the internet, or with any offer you can find.
However, microloans are not recommended for those who believe that they will not be able to repay the money.
If you already have debts, looking for financing of this type is not worth it.
Microloans are a short-term financing option for specific needs and with very similar costs to other forms of loans.
But microloans also have other important purposes: there are microloans to start a business, hire employees, buy equipment, or even microloans for women when they are in a tough situation.
Microloans are loans, but smaller and they are often provided by non-profit organizations such as Community Development Finance Institutions (CDFIs) for example, and other lenders to help underserved entrepreneurs gain access to capital from investors.
Some organizations target certain groups of entrepreneurs, such as immigrants or veterans, women, or minority entrepreneurs.
Others focus on helping underserved communities, and many others focus on helping small business owners who are in specific and perhaps less favored geographic areas.
There is no legal limit on what is the maximum amount of a microloan, but at least the SBA microloan program has a limit of $ 50,000 so many organizations work with the same amounts.
Interest rates can be slightly higher than traditional bank loans, but also lower than other sources of financing that work for the same categories of borrowers.
Remember that in this type of financing there will always be factors that will determine if you can access the loan or not. Such as income and credit scores.
Normally the lenders will be in charge of providing technical assistance, which will serve as a guide or business tutorial to obtain the microloan successfully. Part of its goal is also to help borrowers get a higher score and better credit history to at some point qualify for more traditional bank financing.
Microloans are also part of the US economy, and since these types of loans can be paid off sooner than later a lot of people can use them for different purposes such as:
- To obtain working capital
- To have initial financing to invest
- To pay for commercial space rentals
- To hire employees when they are needed
- To buy better equipment
The process is quite similar to a traditional loan because you must request it from a lender. However, these organizations already have experience working with people who have had problems qualifying for loans, so they will surely do everything possible to make the process as simple and fast as possible.
Most of the time a lender will help you with your process and complete your application.
There are also much simpler microloans, of course, the money loan is less but you can apply to them online easily.
Microloans usually have the advantage that their loan repayment conditions are quite favorable. Most loans have short terms (up to five years), although larger microloans may have longer terms.
The Financial Aid Act recently made some changes to the terms of SBA microloans:
The terms of the microcredits that already exist can be extended up to eight years.
New microcredits made between December 27, 2020, and September 30, 2021, may have a maturity of eight years.
From October 1 of this year 2021, the maximum term of a new microloan is 7 years.
Most of the time, interest rates are quite attractive and lenders avoid predatory loan terms. The lender will try at all costs to ensure that the borrower can meet all the corresponding monthly payments.