Home Financial & Banking Terms What are Micro Loans?

What are Micro Loans?

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Micro Loans

In layman’s language, micro loans are loans of smaller amount, which are generally used for helping small businesses grow or expand. It is due to this incredible aspect of these type of loans that the number of entrepreneurs is increasing significantly. Micro loans help the entrepreneurs in launching and expanding their small businesses.

Features of Micro loans

  • The loan applicants are essentially from low income group.
  • These are small amount loans, hence termed as micro.
  • These are short term loans.
  • Micro loans are offered without collateral.
  • The frequency of repayment of loan is usually high.
  • These loans are usually taken for the purpose of generating income.

Should I Consider Micro loan for my Small Business?

It is very important to analyze the current position of your business and where you want to take it, before you apply for any type of a business loan. The next thing you should consider is the amount of funds required and the options available to you. It is generally a good idea to start with your own bank. Micro loans are a good option when you have a weak credit history.

Even though micro lenders do look at your creditworthiness, but they are usually more concerned with the bigger picture of your business plans. For small entrepreneurs a micro loan can make a huge difference in the future of their business. And as the amount is seemingly small, there is never a huge burden on the borrower to pay it back.

Disadvantages

Everything good comes with a price. Even micro loans have their disadvantages and these should be considered too before getting a loan. One of main disadvantages of micro loans is that they carry a higher rate of interest than other type of loans. Hence, you should carefully analyze every aspect before stepping forward.

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Parul Mahajan is a Post Graduate in Gender Studies from Ambedkar University, Delhi and also holds a Bachelor of Arts degree in English Literature from Daulat Ram College, Delhi University. She is the author of ““Warring Over Religion and Feminism”, a Masters level Dissertation. Parul has also interned with Vimochana, a Bangalore based women’s organization working on various women’s issues.

1 COMMENT

  1. Micro loans are loans usually designed for smaller business houses for lower income groups but then why with high interest rate? Besides this there seems to be no disadvantage associated with it. But then this is a major deciding factor. Micro loans are offered for smaller period of time and without any security.

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