Recent data from the Kauffman Foundation says that business formation rates are independent of the economic climate, but the economic climate still determines the success rate of applications for startup loans. For entrepreneurs who are finding access to credit for their startup business is limited, financial experts at Entrepreneur magazine suggest microloans make it possible to find capital in a tough economy.
Bruce Phillips, senior research fellow at the National Federation of Independent Business, explains that microloans are a good fit for entrepreneurs looking for loans under $50,000 for early stage funding.
The Small Business Administration provides loans to small businesses through about 160 microlenders around the country. The SBA recently gave these lenders $50 million through the Recovery Act to boost microloans.
Microlenders also come in the form of community-based nonprofits, but financial experts advise entrepreneurs who are thinking of incorporating a business to first apply with SBA affiliates (listed on the SBA’s microlending web page).
Fred Tuffile, associate management professor at Bentley University, advises startup business owners to be prepared to give microlenders the same clear vision for their company they would any major lenders. “You don’t want terms where the lender has to approve everything,” Tuffile told the magazine. “You want to run your business the way you think it needs to be run.”
The SBA offers a business plan template that entrepreneurs can use to present to microlenders – and other lenders – when they are applying for startup loans.