How to find microfinancing for your small business

7 min read
Alex Neri

Starting a business is always a dreamy thing to do. The idea of being your own boss or managing your own time is especially delicious to think about in this period when working from home is a norm (for IT workers at least). But rarely do people think or talk about the planning or management part of business, but also the financing part of it. If you are looking for ways to finance your business, read on to learn about this new method called microfinancing.

As the saying goes, to make money, you must spend money. While there are many ways for one to get financing for their business, it is likely you would consider either getting your rich friends and family to invest, or get a conventional loan from the bank. 

The first option is risky as you might strain relationships when things go south. Conventional loans (such as from Landbank, a government-owned bank), on the other hand, give you access to capital up to a million pesos. However, the payment terms might not be amenable for you or that the documentary requirements might be something out of your reach.

In recent years, a new financing option has emerged, and is definitely an option accessible for many aspiring start ups and small business owners. In this article, we will explore how you can tap on microfinancing to kickstart your business.

Mix of copper and silver coins

What is microfinancing? 

According to Investopedia, microfinance or microloans is “a type of banking service provided to unemployed or low-income individuals or groups who otherwise would have no other access to financial services.” It’s a type of service where someone with a small business can obtain extra money or capital to expand their business or keep their cash flow moving.

In Asia, small businesses can range from E-commerce stores to an online reseller, or even a farming enterprise. 

Three people harvesting vegetables

Running any of these businesses or any at a similar scale will have you most likely live off a tight cash flow to keep it running, which makes you unable to expand quickly as needed. Managing cash flow for Small-Medium Enterprises (SMEs) is a challenge in itself, so any SME would love to have a fresh influx of cash to help with either their flow or expansion plans. 

Getting microfinancing is a very viable option for financial assistance, as these usually do not require collateral or extensive documentation for approval.

So how does one get microfinancing?

While researching this piece, I have discovered that information found online is very scarce. And as with all of my articles, I’ve scoured the internet and sources so you won’t have to.

Prepare your business documents, statements, bank accounts and identification

Phillipine passport on a pocket of bag

Most microfinancing services focus on helping entrepreneurs get off the ground. However, there are some services that would also prefer to take a more traditional approach in guaranteeing your loans. So with that in mind, it makes sense to be better prepared.

The following are the documents that you will most likely need to prepare:

  • Your Government-Issued Identification - the most basic requirement. This is your primary identification that is issued by your government. This can be a social security ID, your Tax ID, or your passport.
  • Business Permits and Documents - These can be your local business permits, business certificates, company registration, etc. Have photocopies of these at the ready.
  • Your business Cash Flow Statement and Balance Sheet - This report shows how cash is flowing in and out of your business-- some loan institutions require it.

These are the minimum requirements that institutions would need to consider you for a microfinance loan. Some programs or institutions require additional documentation and requirements, so after step 2, make sure to double check requirements needed for the loan you are applying for.

Find and select a microfinance institution

Building hallway in black and white

In the Philippines, one such group is the Microfinance Council of the Philippines, Inc., where microfinancing institutions are members with a focus on poverty-reduction, social protection, and inclusive financial services. Their members are from all around the country, and there can be one member near you. You can check their directory to select any one of their members.

Another way is to get government assistance through their micro entrepreneur programs, such as the Small Business Guarantee and Finance Corporation (SBGFC), where their focus is to lend money to small businesses with a generally low interest rate and is government-funded.

In Singapore, the government primarily provides microfinancing and investment services. These are centralized in one site Startup SG. The program has multiple options such as the Startup SG Founder, where new entrepreneurs can look for funding support, mentorship and business networks. Other prominent microfinancing institutions include Peer-to Peer (P2P) platform Funding Societies and Aspire

For Malaysia, there are multiple institutions that provide microfinance services. Ringgitplus, a financial comparison website, has a list of these services and companies that you can look into. For government assistance, you can check SME Corp, as they have a program for alternative financing for SMEs

In Hong Kong, the Hong Kong Productivity Council (HKPC) provides loan guarantees for SMEs who are in need of financial assistance. You can check out their Loan Guarantee Scheme on their website. There is also a datasheet for the loan guarantee scheme here.

Contact your institution of choice and submit required documents 

Silver and yellow document clips

Get in touch with the institution you have selected.

In the Philippines, either any one of the ones listed in the MCPI or with the SBGFC will do, depending on your business as some microfinance requirements change depending on your business.

Some of the institutions do not list the documents needed and may need you to contact them first before they send or inform you of the requirements. 

FOR COVID RESTRICTIONS: You will be asked to send the requirements over email; however if you need to submit these in person, bring photocopies of your documents and bring the originals only for verification. One important thing: Always submit photocopies. Never submit originals.

For Singapore, check the information on the Startup SG site. You can also check the Enterprise Financing Scheme (EFS) that has different loans for specific areas of your company’s operations or needs. 

You can apply for these specific loans so you can avail of other loans as needed:

  1. SME Working Capital Loan
    Finance daily operational cash flow needs.
  2. SME Fixed Assets Loan
    Finance the investment of domestic and overseas fixed assets.
  3. Venture Debt Loan
    Finance the growth of innovative enterprises using Venture Debt and Warrants.
  4. Trade Loan
    Finance trade needs.
  5. Project Loan
    Finance the fulfillment of secured overseas projects.
  6. Mergers & Acquisitions Loan
    Finance the acquisition of target enterprises with the intent of internationalisation.

For Malaysia, select a company from this list of private institutions or contact SME Corp for their alternative financing for SMEs

For Hong Kong, contact the HKPC for more information on the loan guarantee.

Once submitted, all you need to do is to wait for approval and disbursement.

Financing your small business for success

The steps in applying for a microfinance or a microloan is not exactly the same as a conventional loan as it requires less documents than conventional loans. One thing to note though - not all applicants will be given a loan as this is mainly focused on small businesses, startups, or for social uplifting purposes such as poverty alleviation. 

But it never hurts to try and get a micro loan for your business. You may never know when your business needs a breath of fresh cash into your business. 

And a quick recap of the 3 steps to get your microloan approved, all you have to do is to:

  1. Prepare your documents
  2. Select the institution
  3. Submit your documents

Good luck and happy expanding!

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