Pros And Cons Of Utilising Micro Loans For Your Business

Micro Loans have emerged as an increasingly popular alternative financing option, particularly for small businesses looking for funding. While the loan can provide much-needed capital for businesses, it also has potential drawbacks. Micro Loans are generally smaller in size compared to traditional business loans. Additionally, Micro Loans can be a valuable resource for small businesses, especially those that are unable to obtain funding through traditional means. However, it’s important to weigh the advantages and disadvantages of Micro Loans before deciding whether this option is right for your business.

This article will guide you through everything you need to know about Micro Loans before you start applying for your small business. We’ll not only cover the advantages and disadvantages but also what are Micro Loans and everything else you need to know about them.

Table of Contents

What Are Micro Loans?

Micro Loans are a type of small-scale financial assistance designed for individuals and smaller businesses who may not have access to traditional bank financing. These types of loans are usually much smaller than traditional business loans and often come with more flexible terms.

Some of the key features of Micro Loans include:

Smaller Loan Amounts: Micro Loans are typically used for relatively smaller business expenditures which can range from a few hundred to a few thousand dollars — depending on the loan provider.
Flexible Repayment Terms: Micro Loan lenders often offer flexible repayment options that allow borrowers to choose the terms that fit their financial situation.
Minimal Collateral: As the loan amount is usually smaller, Micro Loans usually require minimal collateral (if at all). This makes them accessible to individuals and businesses with limited assets.
Focus on Microenterprises: Micro Loans are primarily targeted towards smaller businesses including microenterprises which are small-scale operations with a limited number of employees.

The process of applying for a Micro Loan is also pretty straightforward and usually follows a similar flow:

Application
Assessment
Approval or Denial
Disbursement
Repayment

Micro Loans have played a significant role in empowering individuals and small businesses, particularly in developing countries. By providing access to financial resources, these loans can help individuals start or grow their businesses, create jobs and improve their overall economic well-being. If you would like to learn more about Funding Societies’ Micro Loans, we’ve created a comprehensive guide that you can refer to.

Advantages & Disadvantages of Micro Loans

1. Fast Approval

A significant advantage of Micro Loans is the fast approval process. Funding Societies’ Micro Loans have sped up the process, as it only takes less than 10 minutes to apply. Borrowers will receive their funding confirmation within 2 hours. The distribution of the funds will be sent to you within 24 to 48 hours upon confirmation. This speed can be a huge advantage for small businesses that need funding quickly. For instance, if you need to purchase inventory, equipment or cover unexpected expenses, a Micro Loan can provide you with the necessary funds to do so promptly.

2. Small Amount

While the quick approval process can be an advantage, the smaller fund size of Micro Loans can be a detriment or disadvantage for some businesses. The amount offered by Micro Loans is typically smaller than what traditional lenders would provide, which may not be enough to meet the funding needs of some businesses. This limited borrowing capacity can hinder businesses from reaching their full potential and may require them to seek additional funding from other sources. Funding Societies however, offers S$10,000 to S$150,000, which is a significant range of capital to fund your business needs in comparison to other funding options.

3. Be in Support of Local Social Enterprises

Micro Loans are a great option for SMEs that want to make a positive change in their communities. Some micro lenders solely focus on providing funds for social enterprises; this means if your business has a strong social or environmental purpose, you may have a better chance of securing a Micro Loan than a traditional business loan. Additionally, by choosing a micro lender that supports social enterprises, you can feel good knowing that you are not only funding your business but also contributing to a good cause.

4. Hidden Fees

While Micro Loan can be a quick and convenient funding option for small businesses, they often come with additional fees that borrowers should be aware of. It’s essential to read the terms and conditions carefully to understand the fees associated with the loan. Failure to do so can result in unexpected charges, which can have a negative impact on your business’ finances. Some micro lenders may also charge higher interest rates than traditional lenders due to the risk associated with lending to small businesses.

Micro Loans can be a viable option for small businesses looking for quick and easy access to funding, especially for those who prioritise supporting local social enterprises. However, the limited amount and short repayment period may not suit every business’ needs. It is important to carefully consider the pros and cons before deciding if a Micro Loan is the right choice for your business.

Check out our website for more information to uncover how we can support you in obtaining the essential resources to help you with your business.

Is a Micro Loan Right for Your Business?

Check out our website for more information to uncover how we can support you in obtaining the essential resources to help you with your business. If you’re interested in exploring more funding options, check out our SME loans today!

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Disclaimer: The information provided to you in this blog post is intended only for general information purposes only and does not constitute legal or other professional advice on any subject matter. The materials and the information provided are not intended to be and do not constitute an advertisement or solicitation. In no event will Funding Societies be liable to any party for any direct, indirect, incidental, special, consequential or punitive damages for use of such information by you or any unauthorised third party.

Funding Societies’ Micro Loan are fulfilled by FS Capital Pte Ltd.