Micro loans were originally introduced in the Third World as a way of providing capital for small businesses on a low risk basis. This idea has been extremely successful and has promoted the growth of economies around the world. At a time when the Western world is as worried about debt collection issues as it is about doing business, it’s about time that the West took a look at this option.
Basics of Micro Loans
The current problem for business in the West is that capital is extremely hard to obtain. Credit is difficult to get, and they can also be expensive and risky in the present business environment. The glaring need is for a credit system which is able to provide useful business loans without creating related risks.
For example –
Ask yourself few questions:
· What’s a useful amount of money you could use to improve your business without risk?
· How could you use a small loan to help create more business capital while obtaining more assets and improving your potential for profitability?
· How would you put a dollar number on an affordable loan?
One of the most serious problems to emerge from the credit crunch was the fact that many businesses had taken out loans were at which were at the extreme end of their ability to pay them. Many businesses overreached themselves in the period of easy credit, and were unprepared for the sudden change in the borrowing market. The idea of micro loans is to remove these threats in business credit.
How micro loans work?
Micro loans are designed to provide low risk for both the borrower and lender. The idea is that these loans are structured to provide positive returns for both parties. This approach, by definition, makes credit easier to obtain and much easier to manage for borrowers
For example –
ABC Inc wants to expand its business capacities to get more business and make more money by being able to offer more services. The company doesn’t want to borrow large amounts of money, partly because it doesn’t want to incur risk, and partly because it doesn’t believe that the present market will support major increases in business activity.
ABC Inc therefore structures its borrowing in a series of incremental stages based on a business operations plan. Rather than borrow a large amount of money, it starts by buying basic plant and equipment and expanding its sales base on a manageable level. All borrowings are well covered by available capital and income and don’t represent at any stage a significant risk to the financial situation of the business.
You can see how this works – the business improves its ability to provide services improves its capacity to obtain market share and increases its sales potentials, but doesn’t at any time incur any major liabilities
Some people may be surprised to hear that these micro loans are actually credit best practice, and the type of loan structure used by debt recovery agencies to ensure that repayments are made viable after a loan crashes and burns. If you’re looking for credit, start by doing yourself a favor – Look for the easy options, like micro loans.
Tim Millett is an Australian freelance writer and journalist. He writes extensively in Australia, Canada, Europe, and the US. He’s published more than 500 articles about various topics, including Fast Loans and