Microenterprises such as small restaurants, landscaping services, and brick stores among others serve a critical role in the economy of a nation. In most cases, micro enterprises may not qualify for big bank loans. It is because of this that intermediary lenders offer them microloans. A microloan is a loan up to $50,000 for small businesses. In the United State, the U.S. Small Business Administration provides funds for the intermediary lenders, usually community-based organizations that have formal structures and experience in leading and technical support. Intermediaries would require collateral and a personal guarantee from the investors. The collateral like any other loans would depend on the amount one wishes to borrow.
Different investors use microloans for varying purposes. Some of them include working capital, inventory supplies, furniture or fixtures, and machinery. However, the Small Business Administration prohibits investors from using the microloans for settling existing debts. Besides, the business people cannot use the microloan for the purchase of real-estate.
Repayment terms depend on the amount borrowed, and the planned use. Just as in any other loan, the interest rates for microloans applies on the principal amount. Moreover, because different investments yield profits after varying time lengths, the intermediary would assess the nature of the business in this regard and decide on the repayment terms. Moreover, the repayment may vary depending on the lender's rules, and the need of the borrower. The repayment time depends on the amount, but the maximum is six years. It is important to note that the interest rate varies with the intermediary. Therefore, investors need to check the one offering the lowest interest rates. Usually, the rates range from eight to thirteen percent. Application forms are available at approved lenders. The lender may require one to train before considering the loan application (Microloan program).
Works cited
“Microloan program.” N,p. N.d. Web. May 11, 2016. <https://www.sba.gov/loans- grants/see-what-sba-offers/sba-loan-programs/microloan-program>
