Microloans — loans ranging from $100 to $50,000 — can provide start-ups with needed capital quickly, but operating effective microloan programs requires a balance between serving client needs and maintaining sustain-ability. "You don't want to spend $2,000 to make a $1,500 loan, so programs need to be careful that they don't commit too many resources that won't be covered by fees or interest income," says Chuck Wolfe, president of Claggett Wolfe Associates in Auburn, Calif.
Microloans can help start-ups with viable products and services meet cash flow needs, such as when sales and receipt of payment do not synchronize with payroll or operating expenses. Wolfe says for loans less than $35,000, incubators still need to emphasize market analysis, management capacity and pro forma financials, but they can place more emphasis on evaluating the creditworthiness of the deal rather than past business performance. "The key is to determine the borrower's personal financial stability and willingness to repay," Wolfe says.
Keywords: Funding sources/Fundraising – incubator, economic development, In-house loan and equity financing program, Angel investors/network, capital access, microenterprise
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