When you search among the different forms of financing for your small business, the amount of options can be disconcerting.
Should you borrow from a bank, a credit union or an online lender?
What type of loan should you choose?
It can be difficult to answer these questions. But many small business owners agree that microcredit or a payday loan could be the best option when little cash is needed.
Both microloans and payday loans can provide you with immediate cash. In addition, the lenders that offer these products generally have a fairly simple credit evaluation procedure.
This article will help you understand how microloans and payday loans work so you can decide which is the best option for your business.
Research and then Request a payday advance online
Generally, when a payday loan is obtained it is for a fairly small amount: most of these loans are only for a few hundred dollars. Not only business owners use payday loans. In fact, most borrowers use the funds in this form of financing for personal purposes.
Some of the lenders that offer this podruct could offer you more cash, but if you want to borrow a larger sum, say several thousand dollars, it is better to look for other financing options.
There is a significant advantage that these loans offer.
Getting a payday advance online is very easy. You simply enter this site which offering payday loans and, in a few minutes, you could have the money you need.
It will probably not be difficult for you to find one of these local payday loans. According to a recent report issued by the Federal Reserve Bank of St. Louis, there were 14,348 stores of these types of loans in the United States in 2017. That’s a little more than the 14,027 McDonald’s locations in the country.
However, these loans have a great disadvantage.
The interest rates involved are surprisingly high. A payday loan could have an annual rate of 200% or 300%. You can even find rates of up to 700%.
In contrast, micro loans are much cheaper.
We share a map that shows the maximum interest rates of payday loans in several states.
Since payday loans are so expensive, anyone might think they don’t have much demand among borrowers. Surprisingly, they are very popular. This may be largely due to the fact that the application process is so simple that getting a payday loan is incredibly easy.
What is the application process?
A payday lender usually performs a quick verification of your income and your bank account. The loan payment will, upon request, come out of your next paycheck.
You might even be asked to provide an old check or give the lender the authority to transfer the amount borrowed along with the interest directly from your bank account.
How many people attract this form of loan?
According to a report by Pew Charitable Trusts, an independent non-profit organization, every year, 12 million Americans use payday loans.
There is another significant disadvantage to payday loans that you should keep in mind: once you have requested a loan, it is difficult to get out of debt. A large percentage of payday loans are taken to pay off a previous loan.
Alex Horowitz, a researcher at Pew Charitable Trusts, says: “ 80% of payday loans are taken within two weeks after requesting another initial payday loan since these loans occupy, on average, one third of the borrower’s next paycheck “.
And what is the difference between micro loans and personal loans?
A micro loan is essentially a commercial loan but for a smaller amount. Many lenders classify loans that are below $ 50,000 as micro loans.
However, other financial institutions have a higher limit, they consider loans of $ 75,000 or less as micro loans.
In Romina Financial, this is the categorization that we follow:
Romina Financial: loan categorization
|Type of loan||Maximum loan amount|
|Small business loans||$ 400,000|
Microcredits are considered a superior financial product when compared to credit lines. Although credit lines can be more flexible, they can damage your credit score and have high interest rates.
Another important feature of micro loans is that they offer short-term financing. You must pay the capital along with the interest over a few months. Usually, the loan recovery period extends for up to one year.
At Romina Financial, we offer you more time to pay the money we lend you. Our micro loans have a maximum payment term of 24 months. That is, your monthly payment becomes much smaller with a two-year loan than with a loan that has a term of 12 months.
And our micro loans can cost as little as 19% annual rate or as much as 34%. In addition, there is a single origination fee of 6.99%.
With a microcredit from Romina Financial, you are more likely to be able to meet your payment commitments and grow your business credit.
What differentiates the Romina Financial loans from the micro loans of other lenders?
Micro loans and payday loans: features
If we carry out a comparison of the characteristics of micro loans and payday loans, we will see that there are marked differences. Here is a table that compares the two types of loans.
|?||Micro loans||Payday Loans|
|Interest rates||Their rates are much lower than those charged by payday lenders.||A typical payday loan has an annual percentage rate of almost 400%.|
|Payment time||Generally, 12 months. It could be longer, in Romina Financial they are up to 24.||Two weeks. Most borrowers take a new payday loan to pay off the previous loan.|
|Loan Amount||Up to $ 50,000. Some lenders offer even more, at Romina Financial we offer up to 75,000.||Payday loans are generally $ 500 or less.|
|How easily can you get a loan?||Your loan application will be approved if you meet the lender’s credit rules.||It is easy to get a payday loan. Usually, you just have to prove that you have a regular source of income and a checking account.|
Micro loans and payday loans: what they can be used for
Now let’s examine how the money received from these types of loans can be used.
|Micro loans *||Payday Loans **|
|Inventory Purchase||Payment for food, rent and utilities|
|Equipment reparation||Payment of credit card debt|
|Purchase of equipment||Mortgage payment|
|Purchase of business supplies||Car payment|
|Payroll of employees||Commertial expenses|
* Remember that when a lender provides you with a micro loan, you cannot use the money for a personal purpose. In fact, lenders may have additional restrictions.
** Payday loans can be used in any way. You can spend the money in your company or for your non-business expenses.
You may notice that microcredits are a source of funds for your business, while payday loans are generally used for personal expenses.
Micro loans and payday loans: differences and similarities
Although micro loans and payday loans are very different in many ways, they also share a couple of similarities.
We share a Venn diagram that illustrates this point graphically.
Choose the option that really helps you grow your business
It is very obvious that if you have to choose between a microcredit and a payday loan, the first is the obvious winner.
If your company requires immediate funds, consider applying for a microcredit from Romina Financial. Our approval process is quick and easy, and you may get the money you need within a few days after the request.
Our motto is “We do not close the doors to any business”, and we have created our financial products taking it into account. Even borrowers who do not have a credit history can apply for a microcredit from Romina Financial.
When you contact us, our loan specialists will be happy to guide you through each stage of the application process and make sure you get the funds you need at the lowest possible cost.