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Microloans Explained for SME Owners

When you’re starting up or running a small to medium sized business a small amount of funding can be really handy – it can help with initial start-up costs, help you grow your business and increase your turnover or even help to keep you from falling into debt. Microloans are defined as loans for small amounts ranging from a few hundred pounds to £50,000. For any would-be entrepreneurs out there, a microloan can help you to take your hobby and commercialise it or provide some working capital for a new business to grow. Newer businesses, especially small the medium ones, often rely on personal credit for finance because they haven’t yet established a credit score. Modern microcredit has its origins in Bangladesh where the Grameen Bank claims to be the first modern microcredit institution. The Grameen Bank was founded in 1983 by Bangladeshi social entrepreneur, banker and economist Muhammad Yunus who was awarded the Nobel Peace Prize for pioneering the concept of microfinance. He launched the microcredit project in the small town of Jobra and used his own personal money to provide small loans at a low rate of interest to the rural poor as an alternative to loan sharks. Many micro lenders began as non-profit organisations (and some remain so to this day) but the concept has been commercialised and many of the organisations now function as independent banks. When compared with a traditional loan, a microloan is often easier to obtain, especially for those who don’t have much credit history. While some microloan providers will require a credit score, there are plenty that don’t. Because microloans involve such small sums of money, they are usually much easier to repay. It’s also the case that banks are often reluctant to lend money to small businesses because they suspect that their investment in such businesses won’t be enough to meet their goals. There are a number of companies operating in the UK which provide micro lending facilities and even the UK government has got in on the act! Check out the UK Business Funding Centre, a research and publishing organisation that provides access to a database of difficult to find information and advice when it comes to business funding from the UK government. It’s also possible to do a quick online check to find out which of the many funding schemes your business would qualify for – you could even be eligible for a business grant which would not need to be repaid so using this type of funding finder is a great way to make a start if you’re looking for finance. Before applying for a microloan, you’ll need to make sure your Business Plan is up to date – you want to demonstrate to your prospective lender that you’re dedicated to growing and improving your business by showing that you’ve done all the necessary research about your company’s market. Most micro lenders will provide advice and guidance for business owners to encourage success for your company moving forward.