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POWERS Provide a Consultant’s View on the Merits of Microlending

microlending

Microlending or peer-to-peer lending can be an important tool in today’s challenging economic environment. Microloans are accessible when other forms of credit are not. The POWERS consulting firm explains how microlenders like Mintos can help small and emerging businesses around the world with their financial needs.

How Microlending Works
The main advantage of microlending or peer-to-peer lending is that borrowers who would normally be excluded from receiving credit, whether for financial or geographic reasons, are able to fund their businesses.

Loans may be provided from just one lender or from an aggregation of lenders. This means that a microloan borrower can amass enough credit to get their business off the ground.

People who wish to participate in microlending platforms often find listings online. Lenders are able to make relatively small contributions and to receive favorable interest rates on their loans.

The Process of Obtaining a Microloan
To receive a microloan, a borrower must be able to demonstrate that they have a workable business plan with a good chance of success. Microlenders can function as business counselors as well, giving them the encouragement and advice they need to succeed in a competitive market.

Microlenders may be able to make loans to people with subpar credit (below a score of 680), though most lenders will require a credit history. In the developing world, the strength of an application is based upon the strength of the business plan and the level of success that the borrower has already achieved with their business.

Applying for Microloans
When a business applies for a microloan, it is like a job interview. Applicants need to have their financial forms in order before arriving for the appointment. Microlenders evaluate both the character and the credit score (or lack of credit history) so it is necessary to be organized, professional, and forthcoming.

Businesses must provide copies of all of their financial forms. They will need to have either a business plan detailing their cash flow and projected revenues or detailed profit and loss statements for an existing business.

Businesses need to show how the loan will be used. Having a detailed plan is more likely to encourage approval.

The business owner will need to show that they have invested their own money into the business before they can get a microloan. “Sweat equity” is also a possibility.

It is also likely that a borrower will need personal and professional references. Some microlenders additionally require the use of collateral or a co-signer.

Microloans Can Preserve Businesses
A microloan can preserve a business that is in danger of going under. In today’s extremely volatile environment, every business will probably face financial challenges. Smaller and minority-owned firms are already at a disadvantage, and microloans can help these businesses get back on their feet.

Risks and Rewards of Microlending
Microlending or peer-to-peer lending represents a huge advantage for borrowers and is beneficial to lenders as well. When small businesses are able to use their microloans to enhance their prospects, they are better able to invest their profits back into the business after they have repaid the loan. If they borrow again from a microlending company, they will be considered a lower-risk investment.

Microlending borrowers need to be sure that they can repay the loan before taking it out. If they cannot repay the loan, their credit rating will go down significantly and they may have more difficulty getting credit in the future.

Lenders should always be aware that there is a chance their loans will not be paid back. The creditworthiness of the individual borrower sets the interest rate at which they borrow. If a borrower carries a high-interest rate, the risk may be greater, but the reward is also greater if the borrower does not default.

Fine-Tuning a Business
When a business needs to be streamlined to save money, a business performance improvement consultant like POWERS can help. Combined with microloans, these services help businesses consolidate their activities and save money through better management.

Reducing unnecessary expenses means that a business will have more financial freedom, and microloans can help businesses out of temporary cash flow issues. A business may find that it has enough financial freedom to expand or to hire more personnel. Consultants are useful for helping to make this type of determination or finding room in a budget that was previously stretched thin.

The Meaning of Microlending
Thousands of people around the world are taking advantage of microlending. From women- and minority-owned companies in the developing world to small businesses in the United States, microloans are making a positive impact on the business world. These loans are being made through government and non-government sources.

Microloans will only become more important as the full impact of today’s coronavirus-influenced economy is calculated.

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