Funding a new business in the current climate is challenging. As a rule, banks are much less willing to invest in small businesses than before the crash, and investors are still holding out for conditions to improve.

Yet entrepreneurs still require access to funds to make their ideas a reality, forcing business owners to consider alternative methods for raising the funding they need.

Micro Loans Help New Businesses Find Capital

According to reports in Phoenix-based The Star, micro loans are becoming a more viable way of funding short-term business requirements, including the costs of starting up.

Rather than examining the trading track record or the credit history of the applicants, micro loans tend to be awarded on the strength of individual applications. Typically offering businesses between $1,000 and $5,000, micro loan programs across the continent are already helping businesses create jobs and economic opportunity.

A micro loans program established by Credit Union Ltd. and Alternate Savings in Toronto has rolled out low-interest lending options to a number of businesses in the city. With strong early successes, the program is now being expanded into Ottawa and neighboring regions.

Beyond financial support, micro loans also enable new entrepreneurs to get access to advice on how to run and manage their operations – from legal and compliance issues through to marketing and managing day to day.

Susan Henry, manager of corporate social responsibility at Alterna, said that the micro loans program gives business owners access to much needed support in the early stages of their development.

“It gives an opportunity to learn about marketing, sales, life balance with their work, accounting and bookkeeping. We give them other opportunities to grow their business. We also offer them the opportunity to promote their business at our center at 600 Bay St. We have a unit where they can display their products and services.”

New businesses can struggle to raise capital in normal commercial conditions. However, with banks more reservist than ever before, it has never been more difficult to get a favorable lending outcome from a business bank.

Private investors too are shying away from investing, as confidence and investor sentiment remains low globally. But with small micro loans proving to be a funding strategy that suits the needs of businesses and lenders, it looks like these types of facilities might soon enjoy further growth.

Advance Funds Network, which helps support new businesses from work at home moms through to larger scale operations, suggested that access to cash flow was one of the major factors affecting growth and prosperity in small American businesses.

“Cash flow can be a significant handicap for any organization, and small businesses tend to be those that can least afford these problems. Banks are letting businesses down by not stepping up to offer borrowing, so essential for companies to grow. Facilities like micro loans and merchant advances can be used to bridge the gap in the short-term, and they are proving increasingly helpful for entrepreneurs.”

Advanced Funds Network provides unsecured credit of up to $500,000 to businesses based on an assessment of their order books, rather than based on credit checking. As a result, Advanced Funds Network works with a number of new and small businesses on a short-term basis.