TopCheck's Guide to Microloans
Getting funding can be one of the biggest obstacles for many promising entrepreneurs, business owners, and individuals. However, there is one option that has benefited many small business owners, which is receiving a microloan. While this may not be a good choice for anyone needing major financial backing, it is an ideal option for start ups or businesses that need less than a conventional bank would lend.
A Microloan (also called micro-credit), as its name suggests, is a loan of a small amount primarily to help SME's (small-/medium-sized enterprises), entrepreneurs, and private individuals to finance their business demands or private investments. A microloan, in banking terms, usually refers to loans that usually range between ₦15,000 to ₦2,000,000 and is offered by banks as well as microfinance institutions around Nigeria.
Besides financial support microloans offer the following advantages:
- compared to a traditional loan, microloans tend to be easier to receive even if you don't have a proper credit history
- most microlenders will guide and offer advice to help guide you through the initial stages of the business or start up growth
- an enticing advantage of a microloan is that it is usually quite difficult to completely destroy your financial status as you're not borrowing an excessive amounts of money
Higher interest rates, which are often required to be paid on a weekly or monthly basis, are the major disadvantage, but they are often lower than the interests on your credit cards.
What kind of documents do you need for microloan application?
It is usually sufficient to bring the following documents to a microfinance institute:
- Proof of income (e.g. your employment contract)
- Financial history (e.g. bank statements)
- Business plan (if you are a business owner)
The major challenge in getting a microloan for good rates is in explaining the lending institutions for what you need the loan, so its helpful to think about a strong "selling story" before going to a microfinance branch.
Example Loan: ₦500,000 Loan amount, 1-12 months duration, 2.83% monthly interest rate, 37.61% max APR, ₦688,050 total value, ₦57,338 max monthly repayment, RenMoney MfB