Micro Loans Are on the Rise
The idea that it “takes money to make money” is not a new one, and many small businesses with strong ideas are well-aware of the concept. For some groups, no matter how great a new business initiative is, without any funding, it’s difficult to get started. In Canada, micro loans are beginning to help these groups by providing smaller loans with low interest rates to help get started.
Typically, micro loans have been associated with developing countries that may not have any financial services available. But banks, using risk management tools, have been able to use the same idea with startups. An article in the Vancouver Sun explained how businesses, often ones that don’t have much of a credit history, are benefiting from this new service. The Alterna Savings and Credit Union Ltd. Micro-Finance program, which has recently expanded from Toronto to other Canadian cities, provides loans from $1,000 to $15,000 for new businesses. The credit union also provides marketing and promotion opportunities for clients.
Other non-profits have begun offering micro loans in the country for small businesses, including Community Micro-lending, which uses a peer-to-peer model when making loans. The NGO has a “loan committee” who makes a decision regarding an applicant’s business plan, and funds from the interest rate are split between the bank and the lenders.
“In this tumultuous time when the job market is changing and the world economy reeling, alternative financing such as micro loans is becoming more necessary as people are showing greater interest in launching a business, but lack startup capital,” the Vancouver Sun explained.
With micro lending software, banks and other financial institutions can offer this type of lending as well. With micro loans, businesses that could offer financial stability and future jobs have one less challenge to overcome.