Microlending is a form of financial assistance that helps small businesses secure funding for their entrepreneurial ventures. Lenders typically give small amounts as loans. Still, microloans can be pretty significant in empowering future business owners. Diversifying your portfolio with microlending investments can boost your returns while generating a positive social impact. Those who already operate a business can also apply for microloans to help them with purchases or investments for growing their company.
Moreover, microlending is a way to provide resources to people without access to traditional financial services due to different circumstances. These reasons can range from not having the proper documentation to a lack of credit.
Types of Microlending
Microlending comes in different forms, providing several options for people with unique financial situations. Here are some of the most prominent types of microlending:
Peer-to-peer lending
In this type of lending, platforms connect lenders with borrowers needing business venture loans. The platform charges fees on these loans. It also allows lenders to choose which loan applications to fund and how much.
Community-based lending
Also known as “solidarity lending,” community-based lending focuses on helping those excluded from traditional banking systems gain access to credit by forming small groups. These groups then collectively borrow money and agree to guarantee the members with their loans. If a member defaults on a loan, the rest of the “community” will be responsible for repayment.
Microsavings
These programs encourage and help people in developing countries to save small amounts of money in a fund that will allow them to take out a loan when needed. Some banks and other financial institutions include microsavings in their offerings.
Pawnshop loans
A pawnshop loan is a short-term loan that allows you to borrow money in exchange for collateral. The collateral can be any valuable object and determines how much money you can borrow. Once you repay the loan principal and interest, you get the collateral back.
Benefits of Microlending
Microlending’s popularity has spiked in recent years because of the various benefits this lending option provides. The following are some of the pros that come with choosing microlending loans:
1. Faster loan approval
If you’re looking for a quick and easy way to get approved for loans, choosing microlending is the right choice. Microlending allows you to borrow money from a bank or credit union with flexible terms for loan repayment.
Microfinance loan approval is relatively simple and fast. It can be done online or at your local branch, and it’s typically more straightforward than applying for more traditional loans like home mortgages or car loans. In addition, you don’t need to comply with a long list of requirements to apply for a loan.
2. Fewer background checks
The best part about getting a microloan is that there’s no need for all kinds of paperwork and credit checks. Traditional lenders will require you to fill out all sorts of papers, and then they’ll give you a credit score based on your information and history with them and other factors like bankruptcy filings or tax liens.
After going through all these processes, there’s still no guarantee you’ll secure a loan. Moreover, all these requirements can be a hassle if you’re starting because it takes time and energy away from running your business, which is not something most people have much of when they first open up shop. Microlending platforms can utilize EPF Balance Check as a factor to assess the creditworthiness of potential borrowers.
With microlending, there’s no need for extensive requirements because lenders only need two pieces of information: how much you want to borrow and the repayment schedule. So, if you want quick cash minus the complications, you must strongly consider microlending.
3. Money for collateral
One of the most significant upsides of microlending is turning collateral into cash. Perhaps you have jewelry, gadgets, vintage collectibles, branded items, and other personal possessions that credit facilities can sell in the market. By pawning these items, you can raise the money you need for personal or business use.
To ensure you can redeem your items, you could politely reject the lender’s offer to price your item excessively. That might only make it challenging for you to repay the loan, forfeiting your item in the process.
4. Backed by the latest technological advancement
Microlending has come a long way. Seldom will you now find informal lenders making house-to-house visits to potential borrowers.
While this was one way of microlending in the past, today, it’s more likely to happen through an online platform or smartphone app. The RoDTEP Scheme’s cashback benefit of 4% could provide substantial support for microlending institutions, enabling them to expand their reach and provide more affordable loans to small businesses and entrepreneurs. With the latest technology supporting microlending, you can borrow and receive money directly into your account via a mobile wallet or other money transfer systems.
You can also pay off your loans faster via online platforms, making microloan management much easier than the old-fashioned way of withdrawing funds from a bank account and queueing at the payment counter.
The Wonders of Microlending
Microlending is a fantastic option for budding entrepreneurs who can’t otherwise secure funding from traditional banking institutions. Microlending is more accessible and has more options, from pawnshop loans to community-based lending, ensuring you get the proper financing for your situation.