What is microcredit: advantages and disadvantages

What is microcredit: advantages and disadvantages

Microcredit are small loans offered to help people with low income or with low resources as currently used since a while ago to support the new entrepreneurs to carry out their business ideas. Make it possible for people without resources to finance a labor project that contribute a few incomes and also a new way of survival, is a very important part of microfinance.

Today, as we have said, is a possibility offered to micro (legal person, with less than 10 employees and turnover typically less than half a million euros) and entrepreneurs or self-employed with annual incomes below 60,000 euros, although this may vary depending on who offers this amount, in fact often used even before the creation of the business and have income.

These credits can finance the startup, expansion or consolidation of business and meet working capital requirements.

Its have a maximum amount that depends on who the contribution, but are usually considerably lower than other products, and can finance 100% of the project. Generally you need a business plan or business to endorse and offer seriousness to microcredit, as no guarantees are needed. Its objective to enterprise level is to provide small amounts of money to people with a viable business idea that cannot apply for loans to banks because its have no guarantee.

The current situation of crisis that exists in many areas has made that banks that also started to give micro-loans have had to stop giving them, or at least in the majority of cases, what makes access to financing even more complicated, however there are financing options through micro-credits that help take off good ideas or ideas that potentially profitable business if not for this funding does not they could do arrived anywhere. Knowing that one of the main options out of a bad economy goes through business creation, microcredit is a very useful tool that should be handled with prudence.

How to Get a microcredit

To get a microcredit must think what is the use that is going to give, how and will recover the money that must be paid (it is not a gift) and find all the existing possibilities of micro-credits that can be accessed. Once done, you should do a business plan or master plan that shows how the money is invested. There are models that can help in orientation.

It is important to think about how much money is needed to start, logically should not borrow money without knowing it takes or what microcredit specific needs. You must know the use of resources and develop a plan for how to generate cash flow, amortization of the loan and how to pay the debt. This is with what best microcredit thinking about the interest rates, terms, economic and other possibilities amount of interest.

Advantages and disadvantages of microcredit

One of the main advantages of micro-credit is not needed endorsements; grant depends on trust, which means it can reach who could not get through other funding. In addition, rates of return are quite high, and when small amounts convenience in payment of fees, so that the grant does get the benefit of it and if the credits are paid to say that things are going well for whom receives.

Financing conditions also may be better than other loans, and there are also many products and options based on each group.

The main disadvantage is that, like any other debt, has certain fees and must be paid as determined. But logically this is because it is not a gift, and in fact should not be considered a disadvantage. So really its main disadvantage is that it is small amount loans, if required a greater amount of money should not be required of a microcredit but of a larger product. The processing may be complex, or not.