Microloans
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 The thing always happens that you really believe in; and the belief in a thing makes it happen. Frank Lloyd Wright, Architect |
Microloans from peers are a new development in the internet world.
Based on the model for microloans to individuals in underdeveloped countries, it works like this:
A person submits a request to a microloan website.
Real people take a look at it, and different people contribute different amounts until the total is reached.
The borrower pays back the website, which in turn repays the lenders.
This is definitely worth considering for those who, for one reason or another, don't qualify for traditional banking loans.
The amounts tend to be small, a few hundred dollars or a few thousand dollars, but it is often enough to get a small business off the ground.
Repayment terms are similar to a bank's. Interest is charged, and often reflects the risk inherent in the loan. People with good credit will get lower interest rates than those with poor credit.
And penalties for non payment are just like bank loans: reporting to the credit bureaus, with a nasty ding in your credit profile.
Before jumping in to get microloans from peers, here are some tips:
Tell Them a Story. These are real people you are communicating with. The more realistic the story, the better your chances of getting funded. No phoney baloney. Keep it real.
Know What the Terms of the Loan Are. Each website has different rules, so make sure to read them carefully. Know what you are getting yourself in for, or can seriously damage your credit rating.
Know Your Credit Rating. Get a current credit report with FICO rating and find out where you fall. That FICO rating is a big determining factor in your interest rate.
Expect to Pay More. This isn't a bank loan. You are looking here because you can't get a bank loan. Expect to pay higher interest. Just how much higher the interest will be is very dependent on your credit rating.
Be Patient. There are far more Borrowers than Lenders. It can take a while for the right people to see your request.
Here are the major sites to check. Each is different, so check them all out:
Lending Club. You must have a FICO score of at least 640, and debt-to-income ratio of no more than 30%.
Prosper. A poor credit score won't stop you from registering here, but a good score will certainly help you get funded.
Virgin Money. This site facilitates loans between friends and relatives, so you bring your own Lenders to the party.
Zopa. Must have at least a 640 FICO score, and be affiliated with a credit union.
There are other rules and regs with these microloans from peers, so read carefully.
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Jasmine McAllister, Business Finance Specialist
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