November 4, 2021

How startups can leverage microlending to finance their businesses


It’s a giant understatement to say entrepreneurship is hard.

For most entrepreneurs, all the sweat, tears, and frustrations don’t always equate to financial security. Question is, how can you start a small business with limited cash flow? It can be overwhelming to research the many options for funding and support. With so many options available, microlending might be the solution for you. 

What is microlending?

Also known as microfinancing or a microloan, the idea behind microlending is simple: it involves giving small loans to people who don’t have access to traditional bank funding. This is typically due to poor credit history, lack of assets, or inconsistent employment. Microlending allows entrepreneurs to focus on building their companies without much financial strain in the early stages of their business.

According to the non-profit organization Small Business Administration (SBA)footnote 1, microloans are considered anything under $50,000, and banks don’t always fund amounts that low. The idea behind microfinancing is that giving business owners a very small amount of money will help keep their business afloat when it needs it the most. 

How does microlending work?

Microfinancing has been a concept now for centuries and is still going strong today. Microloans were originally devised to help developing nations and can be traced back to Mohammed Yunus in 1976. Yunus owned Grameen Bank and provided small loans to small businesses. A small loan was given to a group of Bangladeshi women looking to use the funds to make and sell baskets. The purpose of this was to help raise others from poverty and provide non-collateral loans to those who needed them to survive.