by Gerri Detweiler

Microloans are best suited for small business owners or startups that have a thin credit file or can’t secure funds through a traditional bank. Microlenders are non-profit organizations that offer smaller loan sizes, which max out at $50,000 but tend to average much less than that. They charge slightly higher rates than big banks, but have less stringent underwriting criteria. Microlenders will typically mentor you through the application process, which is a big plus. Their goal is to help you build your credit and financial history, so you can eventually qualify for bank funding.

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What You Need to Know About Microloans

Pros: Cons:
Reasonable interest rates (12-18%) Limited to businesses with 5 or less employees
Favorable repayment terms Small loan amount, average $6,000
Great way to establish business credit Requires lengthy documentation
Available for many uses Past credit issues can still disqualify you
May receive mentorship from lender You may have to take a business training class
Collateral usually not required


Best Uses for Microloans:

  • Working capital
  • Start up funding
  • Leasing commercial space
  • Hire employees
  • Pay for equipment

Nav’s verdict:

If you meet the business-size criteria and can’t get a bank loan, go for it! The interest rates charged are reasonable when compared to other alternative financing options. Plus, the mentorship you receive make sure you use the capital wisely. Microloans are also a great way to start establishing stronger business credit by making your payments on time.

Microloan by Kiva

Kiva is a non-profit that provides entrepreneurs with 0% interest loans up to $10,000. Kiva loans are Learn More

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About Author

Gerri Detweiler

Gerri Detweiler

Credit expert Gerri Detweiler is education director for Nav. She has more than three decades of experience in consumer credit education, has been interviewed in more than 3500 news stories, and answered over 10,000 credit questions online. Her articles have been widely syndicated on sites such as MSN, Forbes, and MarketWatch. She is the author or coauthor of five books, including Finance Your Own Business: Get on the Financing Fast Track. She has testified before Congress on consumer credit legislation.