Everyone knows that microloans are invented so that people can get additional funding, making less effort than when contacting a bank. But, nevertheless, to receive a positive response on your application, you still need to prepare. Here are a few steps to take if you plan to take a microloan for business development:
Step 1: prepare a business plan
Any creditor, first of all, wants to look at your business plan. It does not matter if you have just opened up or have been working for several years. To decide whether to microloan or not, the study your ideas and intentions. Thus, it should make sure that you are serious about developing your business and ultimately decide whether you can qualify for a microloan.
In essence, your business plan details the purpose of your business, how your business makes money, what kind of stakeholders there are, what suppliers you have chosen and what you rely on in order to get customers and profits. This may seem complicated at first glance, but in fact it is a simple formal process for describing a large amount of information that is probably already in your head.
A business plan is a very important part in the endeavor. Properly designed document will help to better present how your business will work. And also to show others, in this case, possible creditors, that you approach the matter responsibly.
Step 2: clearing credit history
Compared to bank loans, getting a microloan is less demanding. But this does not mean that such loans are issued to each recipient. Although there are fewer requirements, they are still there. The NFA’s credit history will be reviewed, therefore this document must also be prepared. Each NFA has its own criteria for evaluating a potential borrower, but everyone still has minimum requirements. Therefore, make sure that your credit history has no problem records. And if they are not eliminated, you need to prepare for a detailed explanation of each item.
Ask your bank for a credit report. Make sure there are no errors in it. Check accounts that may be associated with errors. Check overdue balances, which are reflected in the CI, but you have already taken care of them. Carefully review all items that may be misleading your lender. If you encounter errors in the report – immediately submit an application to the credit bureau to change the data. The investigation may take a long time, but if you take care of this in advance, you can eliminate many unpleasant moments in obtaining a loan in the future.
Lack of credit history will be somewhat better option for getting a microloan than a negative CI. But in both cases, it is best to prepare your CI. This will give more chances to get a loan for a large amount and with a reduced interest rate.
Step 3: Consider Providing a Security or Personal Guarantee
Microloans are often issued to companies that have recently opened and operate in the market quite a bit. Such organizations either have no credit history, or it has not yet strengthened. Also, those who have made some mistakes in dealing with money are turning for a microloan and this is reflected in their history. In such cases, it is best to think about the guarantees you can provide to the lender.
In the case of collateral, the lender will have the legal right to take ownership of your valuables and property. Such as your home, for example, so that in case of your default to repay payments for microloans.
If you do not have a home or other property equal in value to the loan, you may be asked to issue a guarantee that allows the lender to use your existing or future savings, investments or other assets to repay the loan.
Although microloans are issued for smaller amounts than loans in a bank, the contract should be taken seriously. Especially if you decide to sign a contract of guarantee. Especially, if you dispose of assets, which belong to several participants.
Step 4: Prepare to invest some of your own money.
If you are looking for a microloan for business development, most likely you do not have enough savings to fully ensure the efficiency of the enterprise. However, lenders want to see your sincere efforts and intentions to invest your own time and money in the business process.
When you apply for microcredit, some lenders may request your latest tax returns and other personal information about your finances and the finances of all participants in the business. This is done in order to evaluate all the participants of the company, as well as to understand how much of your income you are ready to invest in a business.