Microcredit for self-employed and start-ups

Microcredit is a technical term under which differently equipped loans are summarized for very small to small amounts.

These loans are granted to the self-employed, business people and start-ups. Small loans for private individuals are commonly called mini loans or short-term loans.

Microcredit can be divided into two groups.

Microcredit can be divided into two groups.

On the one hand, there are state-sponsored micro-loans that are supported with funds from certain funds. In Germany, for example, there is the microcredit fund, which is also funded by the European Social Fund.

The use of these loans is tied to funding guidelines.

The award modalities are regulated. Applicants must meet certain personal requirements and sometimes the loans are earmarked.

On the other hand, special providers deal with the issue of microcredit.

P2P credit platforms, for example, organize crowd investing to finance certain entrepreneurial projects.

In addition to microloans for private individuals, mini loan providers also provide short-term interim financing for corporate purposes.

Brief history of microcredit

Brief history of microcredit

Microcredit is not a 20th century invention.

Helping new companies financially and providing them with the necessary financial resources is a fundamental concern of the cooperative model developed by Friedrich Wilhelm Raiffeisen in the 19th century.

The idea of ​​a cooperative, solidarity help for self-help, played an important role when Elmar Pieroth stimulated the granting of small loans in Togo. Elmar Pieroth is a German entrepreneur and CDU politician.

The aim of microcredit in this period was to lead people in economically weak regions out of poverty and to give them an economic perspective through independence.

The Pieroth Initiative was followed by other initiatives. The best known is the initiative by Nobel Prize winner Muhammad Yunas for Bangladesh, which led to the founding of the Grameen Bank in 1983.

The World Bank and the United Nations see microcredit as an effective development aid instrument. Both organizations, including other nonprofit organizations, launched microcredit promotion programs in the mid-1990s.

In Europe, the microcredit idea, which was born out of the cooperative principle, was also taken up in the 1990s. The main focus was on promoting start-ups from unemployment.

The Netherlands played a pioneering role. Microcredit programs in the UK, Belgium and other European countries followed.

Germany has had a special microcredit fund since 2009/2010, some of which is financed through European funds. Additional funds come from the Federal Minister of Labor and the Federal Minister of Economics.

The loans were initially processed by the Community bank, and the Green Bank has been responsible for it since 2015.

Loan from the German microcredit fund

Loan from the German microcredit fund

For many start-ups and small businesses, it is almost hopeless to get a bank loan to finance business purposes.

There are a number of reasons for this.

Entrepreneurs and small business owners often only need loans for small amounts. However, many banks refuse to lend small commercial loans from the outset because the effort involved is too high.

In addition, service industries such as catering or retail find it particularly difficult to obtain commercial bank loans.

Other causes can be found in the personal circumstances of the applicant. Small businesses are often created out of unemployment. In such cases, the founders lack the necessary economic background.

The rejection can also be caused by creditworthiness problems. Applicants may have negative Credit Bureau entries and / or poor Credit Bureau score values.

The microcredit fund is intended to make financing possible where, despite a coherent corporate concept, the banks fail to grant loans or only offer them at unacceptable terms.

 

Microcredits are mainly given to small businesses and start-ups. The focus is on financing start-ups from unemployment, women and people with a migration background.

Companies that train or want to train should be given special consideration according to the guidelines.

No group of people is excluded when granting microcredit.

Fundamentally, all entrepreneurial activities can be financed, from pre-financing larger orders to investments in expansion.

My microcredit: the conditions

The Federal Ministry of Labor and Social Affairs calls the microfinance supported by the fund “my microcredit”.

As of July 13, 2017, the following conditions apply:

  • Loans from 100 USD to 20,000 USD.
  • Interest rate of 7.9% plus a closing fee of $ 100.
  • Individual adjustment of the term to the possibilities of the company.
  • Maturities up to four years possible.
  • Special repayments and early loan repayment possible at any time.
  • Payment breaks after prior application are not excluded.
  • Collateral such as guarantees or references is often required.

A special feature is the borrowing in small steps. The desired loan is not immediately paid out in full.

Example: First, a first loan of $ 1,000 and a short term is given to pre-finance a first order.

With proper credit processing by the entrepreneur, further follow-up loans are possible. The total credit volume may not exceed $20,000.

Application and award procedure

For microcredits according to the guidelines of the fund, there are a few special features when applying and when lending.

Interested parties submit the loan application to verified microfinance institutions. Green Bank is responsible for the award. The microcredit fund guarantees the loans issued.

The fund is revolving. This means that repaid loan amounts are available again.

Here is an overview of the application process:

  • Credit application to a verified microfinance institution.
  • Online application possible in many cases.
  • If necessary, take advantage of advice from the microfinance institute.
  • May provide collateral.
  • Credit decision usually within one working day after receipt of all documents at the microfinance institute.
  • Forwarding to the lending Green Bank.
  • Payment of the approved loan amount by the bank within a few days.

In particular: microfinance institute

The application is not made directly to the Green Bank, but to a microfinance institute. Microfinance institutions are independent financial service providers without a banking license. You have to go through a comprehensive verification process.

The main loan terms are the same everywhere. All microfinance institutions also check the viability of the business idea and whether there is a serious business intention.

Many microfinance institutions are limited to certain regions. Others offer their services nationwide.

However, the additional services that the individual microcredit institutions provide in addition to the actual lending differ.

Some financial service providers have specialized in some industries. Others organize the granting of microcredit to founders with a migration background or to women.

There are microfinance institutions that offer training or help their clients create business plans and other documents.

Tip: Find out in detail about the services offered by individual microfinance institutions before you apply for microfinance.

You will find a comprehensive list on this page of the Federal Ministry of Labor and Social Affairs.

Microcredit despite a negative Credit Bureau?

A microcredit guaranteed by the fund for self-employed persons with a negative Credit Bureau is not impossible from the outset.

However, the individual microcredit institutions will take a close look at the individual case.

Lending without additional security will very often be excluded.

As a rule, it will be a guarantee from a solvent person whose income and other creditworthiness requirements meet the requirements.

It becomes critical when hard Credit Bureau entries are found. Affidavits, bankruptcy or arrest warrant, even outstanding claims make the chances of a micro-credit go to zero.

Microfinance from the federal states

In addition to the microcredit fund set up by the federal government, some federal states are involved in promoting start-ups and small businesses through microfinance.

This funding is mostly in the hands of publicly controlled financing institutions. These can be state banks, investment banks or so-called development banks.

The programs of the federal states differ fundamentally from the federal fund.

As a rule, the lending processes are similar to normal banks. This means that there are certain requirements regarding credit history and creditworthiness that not every founder can meet.

Astro Finance entry fee

Astro Finance entry fee

The state-sponsored microcredit is not suitable for every founder.

For example, a founder may need more start-up funding than microfinance institutions are willing to give, or more debt from the outset.

The terms offered may also not fit the corporate concept. Or the standard interest rate is not sustainable according to the corporate concept.

In such and similar cases, a look at Astro Finance Bank’s promotional products is recommended. The funding backdrops 067 and 058 are particularly relevant.

With the ERP start-up loan (067), loans of up to $ 100,000 are funded for investments and operating resources. The interest rate is between 2 and 3%. Equity is not required. A repayment-free start-up year is offered.

The funding is aimed at start-ups, including freelancers, successors and young companies. Restructuring cases are excluded.

Further details on this support program can be found here on the Astro Finance Bank portal.

With the ERP capital for foundation (058), a loan with the character of an equity is granted up to an amount of 500,000 USD.

The beneficiaries are start-ups, business successors and young companies up to three years after starting business.

Interest rates are very low. In addition to the actual interest, a guarantee fee of one percent per year applies to the loan amount that has not yet been made. This fee is included in the APR.

The financing has a term of 15 years. A fixed interest rate is granted for ten years.

All details and further links can be found on this Astro Finance Bank website.

Microcredit for the self-employed without state aid

Microcredit for the self-employed without state aid

Of course, there is the possibility that some commercial banks, cooperative banks or savings banks also offer special microcredits for start-ups or existing companies.

There are certainly a number of financial products on the free market that enable short-term interim financing.

In this article, we want to focus on a few microcredits that are offered to businesses, freelancers, and entrepreneurs on the Internet.

Lite Lender Bank

Caution! Currently (as of December 2017), the supply pages for this credit product are apparently not available.

For corporate purposes, a microcredit can be applied for online from Lite Lender Bank. The product is called Up Credit.

Traders or self-employed persons with regular income are eligible to apply. A personal guarantee from the applicant is required.

Lite Lender Bank’s commercial loan is suitable for short-term interim financing. The regular term is 30 days. The loan with a maximum amount of up to $ 20,000 can be repaid in six installments.

It gets exciting with the costs. The annual percentage rate is 13.90% (as of August 2017).

If you choose standard processing, you will receive the credit for the loan amount within 3 to 5 days. Aside from the APR, there are no other costs.

The express transfer within 24 hours costs 99 USD. Installment payment options (extension of the term to 60 days) are charged at 199 USD.

Companies that have not been in business for three years need a credit certificate. The fee for this is 5% of the loan amount.

Of course, every interested party is free to decide whether this microcredit is eligible.

In our view, this microcredit offer is definitely not an option for start-ups and young companies.

P2P microcredit for the self-employed

Credit exchanges that broker P2P loans also target self-employed people, freelancers, traders and founders.

P2P loans are loans that are financed by private donors.

Interested parties submit a project description to the credit exchange. The loan project will be reviewed and discontinued if necessary so that private investors can bid on it.

The lending is formally carried out by a bank taking into account German legal provisions.

The interest rates for P2P loans are not low. The award procedure takes some time. Nevertheless, this type of loan is suitable for the self-employed, especially if a particular investment project is to be financed with a relatively small loan requirement.

Best Bank, for example, also finances start-ups if they have a loan requirement of $ 1,000 or more. Term: from twelve months. The interest depends on the creditworthiness.

Funding Circle (formerly Zencap) is a P2P platform that deals exclusively with the provision of credit to self-employed people. The application can be made online and will be decided within 48 hours.

After a positive credit decision, the capital is available within seven days.

Microcredit is available from 5,000 USD. The maximum amount is $250,000. Short terms from six months are possible. The interest rates are currently given as “from 3.79% interest annually”.

However, the P2P loans brokered by this credit exchange are not for start-ups. The company must have been active for at least two years and have an annual turnover of 50,000 USD.

In addition, balance sheets must be available according to the HGB.

Real collateral is not required. However, joint and several guarantees from owners or shareholders are apparently expected.

Exclusion criteria are declining business developments, liquidity bottlenecks or a lack of equity. An equity ratio of at least 5% to 10% is expected.

Funding Circle has good reviews in the trade press and from customers. However, the application process is relatively complex.

Annual accounts, business evaluations over longer periods of time and the like must be submitted.

Therefore, the credit exchange may be more suitable for larger debt financing than for mini loans.

Microcredit: uncomplicated loans for self-employed and founders

Take out a loan despite negative Credit Bureau

Anyone who thinks about a loan application has to think a lot in advance. The question of whether you can get a loan at all is particularly important. It is not uncommon for people who have a bad Credit Bureau to try to apply for a normal loan. This project fails due to the strict guidelines of the banks, which want to keep the credit default risk as low as possible.

Applicants should know that a bad Credit Bureau can severely depress creditworthiness and the risk of rejection is very high. It is also good to know that every specific application is noted in the Credit Bureau, which in turn can lead to rejection. Those who have a bad Credit Bureau and have already been rejected by the bank may want to take out a loan despite a negative Credit Bureau.

What does the customer need to know about the loan?

What does the customer need to know about the loan?

The loan is given abroad despite a negative Credit Bureau. In the past it was common for the loan to be granted only in Switzerland, nowadays the loan often comes from Lichtenstein. But nobody interested in this loan has to go to Lichtenstein. It is enough to find a broker who specializes in this loan and can answer all important questions.

Customers receive a form from this, which the bank will later need to decide whether to grant a loan or not. Information that must be entered here must always be true. If this is not the case and the bank gets it out, the loan must be repaid immediately despite the negative Credit Bureau and a lawsuit can arise.

The information includes information about yourself and questions are asked regarding the loan. The loan amount, the term and the monthly installments should be considered in advance, since these must be entered here.

People who are excluded from lending

People who are excluded from lending

Customers who receive unemployment benefits, pension payments or training salaries are immediately rejected by the banks. They either earn too little or receive payments from the state. These payments are not attachable and do not count as income. Banks abroad have to do without Credit Bureau, but not other forms of security such as a fixed salary. This is necessary so that the loan can be secured.