Microfinance Loans

Not having enough funds to start a business is an issue that a lot of successful business owners have encountered. The good news is, with a microfinance loan, you can achieve your goals and have the small company you’ve always wanted to have.

Microloans have outstanding success rates and excellent repayment plans that make owners more likely to keep up with their payments while keeping some of the profit they make. They’re also of great help for those who don’t have enough money to replace lost equipment or broken down machines necessary to keep the business running.

In this article, we’ll go through some details regarding microfinance loans in Australia, including the general terms, how such loans work, and who’s eligible for getting such loans. We also made sure to tell you about the downsides of such loans and the consequences of defaulting on your payments, so without any further ado, let’s get right into it!

What’s a Microfinance Loan? 

micro loans australia

A microfinance loan is a way to provide small business owners who have no capital with the necessary fund to grow their business. 

Because banks and other major financial resources consider such owners high risk, these owners don’t get approved by such institutions. They’re forced to look for other resources to get the needed money to run the business when it comes to supplies, investments, or even providing insurance for workers involved with the business.

How Does a Microfinance Loan Work in Australia?

Most micro loans through nonprofits are offered in the same manner different organisations provide traditional loans. As you borrow the full amount, you’re required to make repayments according to certain terms that define the length of the repayment plan, the interest rate, and the amount you have to pay per month.

However, a centrelink customer micro loan will follow peer-to-peer lending, where multiple investors provide the borrower with the needed fund if they have an interesting offer or compelling business plan.

If you’re lucky enough to find a non-profit organisation, you can get the needed fund to run your business with competitive or even no interest, to begin with. Unfortunately, these programs depend on geographical distribution, so they’re harder to find.

Who’s Eligible for a Microfinance Loan?

microfinance loans

Qualifying for a microfinance loan isn’t as hard as qualifying for traditional loans because the amount you borrow is smaller. Accordingly, lenders make a lower risk by giving small business owners the money. This is why you can get a microloan even if you didn’t have a chance to build a credit score or if you have a less-than-spotless credit history.

To qualify for a microfinance loan in Australia, you have to provide evidence of accommodation, as well as a summarised analysis of your business strategy, and lastly, a financial statement.

Furthermore, lenders usually need an asset or collateral to attach as a guarantee they’ll have their money back if the business goes down and you fail to make repayments. This collateral can either be personal property, the profit your company makes, or even real estate. 

How Much Can I Get Through A Microfinance Loan? 

The average amount you can get from a microloan is $50,000, but non-profit organisations usually offer fewer amounts. As for interest rates, they can vary from 0% -as with non-profit loans- to 20% or higher. 

What Are the Terms of Microfinance Loans in Australia? 

A micro loan for bad credit can extend for three months and up to seven years. This depends on the amount you borrow and your capability to make regular payments without being under substantial hardship. 

Why Should I Get A Microfinance Loan?

micro loan australia

The main advantage of micro traditional loans is that they allow business owners to have access to capital that they can’t have otherwise. As mentioned earlier, banks and major financial institutions don’t lend new entrepreneurs who have no credit record.

Centrelink customer micro loans are more flexible than traditional ones because they have fewer requirements. Most lenders would need to run a credit check to find out your credit score. As long as you can provide collateral, chances are, your request will be approved. 

Also, these loans are designed for instant money access, so you’ll probably get the fund you need within a couple of days rather than waiting for several months.

What Are the Downsides of Getting a Microfinance Loan?

The only downside of microfinance payments is that they’re not sufficient for those who need a large fund to work things out. As the name implies, a “micro loan through nonprofits” is a small loan that can only be used for replacing or buying new equipment or hiring more workers. 

What Happens If I Default on a Microfinance Loan? 

microfinance loans australia

As expected, defaulting on a loan will come with some consequences. These consequences can vary according to the outstanding balance you’re left with. 

As per your agreement, defaulting may result in an increased interest rate, a late payment fee, or it can be as severe as losing the asset attached to the loan. This is why it’s crucial to check the terms of the loan before committing to it. Some lenders offer a grace period, during which you can catch up on your payments without having to pay a late fee.

Final Thoughts

A microloan can turn things around for those who’re hardly making a living and want to start their own small business.

It’s crystal clear that this bad credit micro loan are much better than traditional ones in terms of flexibility and accessibility. Thus, we believe microloans are the way to go even if you have a good credit score and you are eligible for a traditional loan, assuming that the fund offered is enough for you to settle things.

That said, you can still find low or no-interest traditional loans if you need a large amount of money to start your business; you just have to dig a little deeper.

About the Author

Lucy has over a decade of experience in finance. She is currently the content curator here at Perfect Payday.

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