What Is Microfinance? Is It a Good Option for You
(FinancialHealth.net)- Microfinance is a type of financing that assists low-income or unemployed individuals with obtaining a funding source for capital. When plagued with a lack of funds, it’s almost impossible to walk into a bank and request a loan to finance a business.
Make It Easier To Get The Funding You Need
Microfinancing takes lenders and matches them up with individuals looking to improve their lifestyle by starting their own businesses. Explore more about microfinance and how it can help someone with no funds or credit on the road to success.
A Different Kind of Lending Experience
For individuals without access to traditional banking services, the dream of launching and funding a business can seem out of reach. Many turn to microfinance as a viable option. So what are some benefits of going the microfinance route?
- No complicated application process
- Borrowers don’t necessarily need a good credit score
- Lenders often look past monthly gross income
- No collateral required
- Flexible repayment terms
- Low-interest and minimal fees apply
- Lenders look at the applicant’s overall business plan more so than past credit history
Some microfinance services are through banks, and the banks throw in some perks too. This includes free checking and savings accounts, insurance policies and financial education. The goal is to have the individual succeed, not fail with their business venture.
Where Does the Money Come From?
With microfinance, investors are willing to put their own dollars into short-term small microloans. Most lenders are mission-based and want to see others better their lives through self-growth. Investors are often non-profit agencies and get additional funding from government-backed grants and sources. They, in turn, use this money to lend to disadvantaged individuals looking to improve their credit, business, and lifestyle.
Wondering who qualifies? The approval process isn’t as extensive and complex as most conventional loans. Underwriting is mainly done by the original lender, not a corporate board. The only down payment often required is an amount that goes into the borrower’s savings account. The money is set aside as a buffer or form of collateral that is reimbursed once the loan is paid back. A rocky credit history is often overlooked, making it easier for borrowers to get the money they need faster.
Reasonable Loan Terms
Each lender is different. 24 or 36 months are popular short-term loan terms and the interest rate is often very low. Because collateral is generally not required, lenders will group borrowers together into one mega loan. In turn, they are less likely to default and pay off the loans and make their required payments.
Peer pressure seems to work for most borrowers. The ideation is that it’s less likely one person will default because satisfying the lending agreement requires everyone to pay their amount back or the entire loan defaults.
For business-driven people who want to launch their own startup, bad credit and lack of lending sources shouldn’t hold them back. Microlending and microfinancing is an exciting alternative to get that push needed for a successful business launch.
~Here’s to Your Financial Health!
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