From time to time, lots of small businesses find themselves needing an infusion of extra funds either because their own money is tied up in their operations or they require additional funding to pursue growth opportunities.
Many entrepreneurs who find themselves in such a situation ultimately decide to secure financing from an outside source.
Historically, when a small business owner needed money, they might head into their neighborhood bank, apply for a loan, and that would be that. But these days, traditional small business loans are much harder to get and there are many more options for funding.
While the numbers have been improving, only 27.8% of big banks approved small business loans in August 2019, for example. Phrased another way, 3 out of 4 small business owners who seek financing from big banks endure an exercise in futility. Few entrepreneurs can afford to waste that much time. At the same time, even those who are lucky to get approved can still expect to wait several days or weeks to hear the good news.
Beyond that, traditional loans often carry hefty price tags. Most banks typically aren’t interested in lending an amount like $5,000 to small businesses because they can’t make much money on tiny loans. Instead, they generally prefer lending to applicants who meet their rigorous criteria—but only if they’re applying for loans of $100,000 or higher.
Many small businesses, however, don’t need that much cash. At the same time, many owners aren’t comfortable with the idea of adding on that much debt to their balance sheets when it’s not absolutely necessary. It’s a massive responsibility—and one that some owners may not want.
If you’re the owner of a smaller business looking for a little bit of extra cash to grow your company, a microloan might be the perfect financial choice for you.
What is a Microloan?
A microloan is a small loan, usually in an amount that hovers between $5,000 and $50,000. A number of different organizations offer microloans, such as credit unions, the Small Business Administration, and fintech firms.
Microloans can be easier to secure than typical term loans. When you apply for a microloan, the lender will consider how long you’ve been in business, how much money you’re requesting, where your business is located, what your business’s finances are like, and how likely you will be to repay the loan before signing off on it.
Microloans are not without their downsides, however. In some instances, microloans can be more expensive than traditional term loans, with higher interest rates. Of course, if your business needs a large sum, microloans won’t be too helpful, either.
For business owners seeking smaller amounts, there are lots of ways these small loans can help you grow your business. Let’s explore a few of them.
5 Ways to Use Microloans to Grow Your Business
There are certain things microloans probably can’t help you with—like covering your entire payroll, buying a new property, or hiring additional staffers.
However, microloans can become a critical financial tool for your small business.
To give you a better idea about how these funds can help you grow your business, here are 5 common ways small business owners like you use microloans.
1. Working Capital
Working capital is the money a business needs to finance its day-to-day operations—like covering utility bills, getting supplies, buying inventory, and paying for an employee appreciation party.
Cash is the lifeblood of every business. Yet many businesses struggle with cash flow, which makes it hard for them to cover run-of-the-mill expenses with any sense of urgency. For example, a recent study by PricewaterhouseCoopers found that the average company takes 68 days to pay its creditors.
With a microloan on hand, you have a reserve fund to dip into to cover working capital expenses. Not only can this help you reduce debt, it can also help you avoid late fees.
2. New Equipment or Tools
Often, a simple investment in new equipment can go a long way toward increasing productivity. For example, if a company is still using an old-school cash register and managing accounting by hand, it stands to benefit tremendously from moving to a more modern solution.
You can use a microloan to invest in new equipment or tools that deliver rapid ROI. For example, if you run a company where employees are spread out and working in the field, investing in a collaboration platform like Slack to streamline communication can help your entire team work more efficiently, increasing profitability.
3. Launching a New Service
Let’s say you run a local restaurant that’s been a staple of the neighborhood for some time. For years, loyal customers have been begging you to launch a food truck business so they can grab tasty treats elsewhere across town. You always liked the idea, but you just didn’t have the capital to make it all happen.
All of a sudden, a used food truck practically falls into your lap for a price that’s too good to refuse, and you’re finally ready. You just need a little bit of extra funds to finance some other food truck startup costs.
A microloan can help you here, too. With access to these funds, you can give your truck a tune-up and paint job, buy cooking items, and start your new culinary adventure.
4. Attending a Conference
One of the best ways to grow your business is by attending a relevant conference or trade show that’s specific to your industry. Not only can this help you learn new things and stay on top of the latest developments in your field, but it can also help you land new clients.
Paying for a conference, however, can be tricky. Conference tickets can be expensive, and you may also have to pay for lodging, travel, and food costs, among other incidentals.
A microloan could help here, too. Use the funds to cover your conference-related expenses. If all goes according to plan, the skills you learn and the contacts you make will more than offset this spend.
5. Marketing Your Business Online
In the age of mobile devices and ubiquitous connectivity, how can you expect people to find your business if you don’t have a robust web presence?
Microloans can help you pay for online marketing initiatives. For example, you might decide to invest in content marketing, pay for sponsored posts, or advertise your business on Google and social media. Microloan amounts should be enough to launch test campaigns or boost important company news.
Is It Time to Apply for a Microloan?
While microloans might not solve all of your small business financing needs, they can be incredibly helpful—even if the amount is small.
With funds from a microloan, you could have access to the right amount of working capital you can use in targeted ways to grow your business. In this light, microloans can give you the peace of mind that comes with knowing you have the financial wherewithal needed to respond to new opportunities with agility.
With funds always within reach, you can worry less about financing your business and focus more of your attention on what matters most: impressing your customers and keeping your team inspired.