Microloans can build credit for small businesses

Small business owners with poor credit may be able to improve their scores by securing a microloan or other form of short-term financing, Inc. magazine reports. A small loan that ranges from $500 to $35,000 may be well-suited for companies with no credit or a bad business credit report, as well as those that cannot qualify for a bank loan or report other risk factors. According to the Association for Enterprise Opportunity, microenterprises made up nearly 88 percent of businesses in the United States in 2008. Businesses with fewer than five employees are prime candidates for microloans, the magazine reports. Short term loans also offer an alternative source of financing for cash-strapped businesses. When applying for any loan, applicants should approach the process as professionally as possible, since microlenders evaluate a person's character as well as his or her credit score, the magazine reports. The strongest applications are able to prove the company will repay the loan with a positive cash flow and strong references. The U.S. Small Business Administration runs a microloan program through nonprofit, community-based organizations. The average loan the administration grants is about $13,000, but loans can hit $50,000, according to the group's website. These loans cannot be used to pay off existing debts or purchase real estate.