What is a microcredit?
Microcredit is a small loan that can be used to start a business. The difference to a normal business start-up loan is that micro amounts can be lent to microcredit. A maximum of 25000 euros can be granted, which must be repaid over a certain period.
What advantages does a microcredit have?
The benefits of microcredit lie in the fact that even small amounts can be borrowed easily. While this is unlikely to be profitable for the bank when it lends a start-up loan, and often rejects this type of application, the potential microcredit founder is finding a good alternative to putting his ideas into action. The loan transaction is carried out by so-called microfinance institutions. The respective institute is also the contact person while the loan is being paid off.
Another advantage lies in the unbureaucratic allocation of microcredits. As a rule, only a few days pass from application to payment of the loan. On the other hand, the processing time of a normal loan takes up a lot of time, causing delays for the founder.
The microcredit appeals above all to small and young companies, whose possibilities are limited to a conventional loan with the bank. A particular focus of microcredit lending is to people with a migrant background and women who want to start a business. However, since ultimately no group of people is excluded, the chances are good to get support for their own business ideas.
Due to the fact that the repayment of the loan can be adapted to its own possibilities, the loan is very flexible for the borrower.
The disadvantages of microcredit microcredit
Microcredit provided an opportunity to promote self-employment. Nonetheless, interest rates are not necessarily cheaper than traditional loans. Furthermore, there are now many credit intermediaries in the market whose consultations are not audited. Whether a reasonable quality is available, therefore remains an open question. The maximum term of microcredits is very short with up to four years. This is often not enough to gain a foothold in self-employment. Furthermore, often small guarantees or references from the private and business sector are required for the award.