Micro loans are small, short-term loans ranging from $500 to $50,000 and are typically used to help start a small business. It is usually faster to apply for micro loans compared to traditional business loans and borrowers can obtain a micro loan without a business credit score.
Though micro loans are not as strict compared to traditional loans, failing to pay them can negatively affect a borrower’s credit score.
Micro loans are often used to pay employees’ wages, to buy office supplies and equipment and to service machines.
For business owners looking to improve their chances of loan approval, the Small Business Administration (SBA) recommends completing a business plan, providing evidence of financial cash flow, giving a personal guarantee on the intended use of the money and repayment plan, and identifying possible collateral should it be required by the lender.
According to the SBA, small businesses take up an average of about $13,000 in micro loans at interest rate of between 8-13%.