The loans that are given to the entrepreneurs and business owners to start or consolidate their micro-enterprises are often known as Micro loans. These are the short or long term business financing of very small amount and are provided to the people who are otherwise considered unfit for conventional loans. There are several community lenders who approve and disburse the loans to needy individuals. The community lenders are provided funds from the SBA and the maximum limit for the micro loans is $35,000.
The micro loans work as a financial booster for all the economically weak individuals who would like to establish their own business or gain self-employment. People applying for these loans do not possess the necessary credentials for conventional loans – neither do they have a good credit history nor do they have a steady job. Micro loans can be put to a variety of use like purchasing stocks, machineries, furniture and even can be used as working capital. Some of the most significant aspects pertaining to the Micro Loans are as follows:
Micro loans cannot exceed $35,000 under the present laws and the average amount disbursed is $200 where the loan term does not exceed 6 years.
These loans are easier to secure when compared to the conventional loans.
The Micro loans are approved and disbursed by the community lenders only after satisfactory scrutiny of the credit histories of the applicants. These funds come from the SBA who allocates it to the community lenders for the exclusive purpose of helping economically backward individuals. Since these loans are disbursed within the community, so it is best suited if the borrower resides near to the community. Though collateral might not be mandatory for such loans but the approval of micro loans requires guarantors. The borrower will have to undergo the mandatory training as well as business planning before the loan is approved.
A variety of projects are covered by the micro loans and some of the most popular ones are:
- The projects that are meant for the upliftment and self-sustenance of communities belonging to the low income groups
- Projects that are made to create self-employment or create micro-enterprises involving more than one individual
- People who want to apply for these loans need to get in touch of their local communities and submit a formal application for micro loans. Micro loans need a lot of documentation, so borrowers can expect to get an approval only after thorough scrutiny.