Micro Loans are a source of finance that many companies overlook.

But the reality is that they are an excellent choice for business owners who don’t have time to apply for a commercial loan or who need less money than normal loans do. As with any loan, what really matters is how you use the money to grow your business.

What are microloans?

Micro Loan or Micro Finance or Micro Credit generally involves smaller amounts of money compared to commercial loan. Depending on the country you live in the amount varies.

Micro credit is excellent for covering smaller expenses or for getting just a little more in return for the investment made. A microloan works just like a regular installment loan: the lender gives the borrower the full amount and the borrower makes monthly payments to repay the loan principal along with interest. Microloans are usually provided by nonprofit organizations or government agencies, or private organizations.

For e.g. in United States of America the micro loan amount can range from $500 to $50,000, but on average they are about $13,000. In India, the amount varies depending on the business and is typically in the range of Rs. 3,00,000 to Rs. 15,00,000.

Benefits of Micro Finance

Micro Loans or Micro Finance are generally considered working capital, meaning that they are used to cover more short-term expenses rather than longer-term investments. They are usually offered to poor and unbanked individuals in rural and semi-urban areas.

Here are 7 ideas on how to use a micro loan

(1) Buy extra inventory

In most businesses, there are usually certain periods of time that become incredibly busy and require more resources. These periods can be the holiday for retailers or the tax season for accountants.

During these periods, it often helps to purchase additional inventory to avoid running out of inventory or cash during the busiest time of the year. Depending on the amount of money needed, microloans can be very helpful.

(2) Equipment Repair or Upgrade

It’s very likely that you need technology in daily operations. You may only use computers for payroll and inventory management, or they may be more complex machines used for production, welding, repairs, etc.

No matter what type of equipment you have, the technology will always be imperfect. Having faulty equipment can lead to inefficiency and can even be dangerous.

If you need additional capital to repair the equipment, a microloan is the best option. You can also use a microloan to purchase latest technology.

(3) In case of delayed payment

It often happens that big customers may not pay you in advance for your services. In some cases, capital may be delayed due to unforeseen circumstances.

You can get a micro credit to cover necessary operating expenses while waiting to receive payment from your customers. This can help boost your business while waiting for late payments that would otherwise hinder your business.

(4) Rent and Utilities Payment

There are certain basic things you need to run a business, such as office space and electricity. If you are in a serious situation and know that you will not be able to pay the rent for the location of your business or that you will not be able to pay for utilities, it may be worth getting a micro finance to cover these costs. Obviously, this should be a last option.

(5) Hiring Temporary Workers

As mentioned in point 1, sometimes your business can be so busy that you and your workers are completely overwhelmed. This might be the time to look for temporary workers.

There are temporary workers for all kinds of jobs, from physical work to office tasks like filing, answering phones or even doing things like inventory management.

Getting a micro finance can provide enough funds to hire a significant number of temporary workers who can help you get through the busiest times of the year (your employees will surely thank you too).

(6) Financing Employee Events

Everyone knows that a happy worker is more productive and efficient. That’s why many business owners tend to organize lunches or events for their employees once or twice a year. Other employers may even organize events for their customers or to recruit employees.

No matter what the occasion, these types of events can be quite expensive when you add up the location or the food. If you don’t have the funds to cover an event, a micro loan could provide what you need.

(7) Renovations or Expansions

If your business is booming, you may the feel the need to expand the current working space. Customers and employees tend not to be happy if they are crowded into small rooms.

If you’re looking to renovate your current workplace or even add some expansions, a micro credit could be a big help. You’ll have more space for a constantly expanding customer base and the business.