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What Is a Business Microloan?

A business owner talking about her business microloan

A business microloan is often the best option for micro and small businesses seeking to grow. Let’s look at the definition of this type of loan, how it can be accessed and how business owners can use small loans, also known as micro loans, to boost their business.

Definition of a microloan for business

The definition depends on what source you’re using. Some organisations define this type of small business loan as being under $25,000 while others define it as being under $50,000. Although these amounts might seem very small for a medium or large business, micro businesses and small businesses could find this level of finance very helpful for improving cash flow or implementing growth plans. For some businesses, access to micro loans can mean the difference between success and failure.

Business microloans in Australia

Bank term loan

Small and micro businesses have several options available when seeking a micro business loan. Large financial institutions, including the big four banks, don’t specialise in these types of business loans. One bank, for example, advertises business term loans from $20,000 to $250,000. Even borrowers on the lower end of this scale need to go through the traditional application process. This includes providing financial statements and, in some cases, submitting a business plan. Depending on the circumstances, traditional banks offer secured or unsecured versions of these business loans.

Once all the information is submitted, it can take up to two months to get an answer. Despite the length and complexity of getting this type of loan, the one advantage is the lower interest rates when compared to other types of business finance. Although it’s not recommended, some people use personal loans for businesses purposes. This is because they are based on personal credit scores and income history. For a person moving from paid employment to starting a business, this can be a way to get small business finance. 

Business credit cards

Business credit cards are one way to get a business microloan. The main advantage of this form of finance is that it can be easy to access use. The main shortcoming with this type of loan is that the interest rates can be high. If a business is new and doesn’t have an established credit history, a personal credit card could also be used for business purposes based on the person’s credit score and financial history. Find out more in Tips for Choosing the Right Business Credit Card.

Online unsecured business loans

The introduction of fintech (financial technology) business lenders into the Australian market has made it possible for small businesses to access business microloans. This new crop of alternative lenders has streamlined the process to make it easy to get business finance. By using cutting-edge technology, the application process is fast and simple. Lower overheads make it possible to offer smaller loans.

Moula, for example, provides business microloans starting at $5,000. In addition, these business loans are unsecured, so no collateral is required. As an unsecured business loan, there is more risk to the lender, so the interest rates are higher than some other forms of business finance. Learn more about unsecured business loans from Moula. 

Microlending as a social initiative

Another word used to describe these types of loans is microfinance. However, this term is often used to describe very small loans to people who can’t get a loan through mainstream financial services. Some microfinance programs receive seed funding through donations or government programs. They typically provide microloans to help people start or build their businesses, which are usually solo operations. Internationally, microfinance programs help people in the developing world get funds to start a business. Examples of these programs include Kiva and Good Return. These organisations help people with loans as small as $500 to fund a business or community enterprise. The criteria for these types of microloan programs often include the lack of other lending options and the social impact upon the community that is served by the business or organisation.


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