By Rieva Lesonsky

Is a lack of startup capital holding you back from launching your business? It’s ironic, but true, the traditional lenders are least likely to lend to those who need it most — would-be entrepreneurs with plenty of ideas, but no source of financing to back them, who just need a little bit of money to get started–that is, a microloan.

For banks, the time and effort of the paperwork involved isn’t worth the risk of making a small loan (typically defined as anything under $100,000). And as a startup, you won’t have a track record to convince them your business deserves funding. No wonder many small business owners are turning to microloans instead.

A microloan is a small loan, typically ranging from as little as a few hundred dollars to as much as $50,000 but typically on the lower end of that scale. Microloans are available from a variety of sources, from online loan platforms to community organizations and nonprofit groups.

Is a microloan right for you? It might be if:

You are just starting your business. While traditional lenders are leery of lending to startups, micro-lenders often take the opposite approach. Many groups that make microloans also offer resources, expertise and advice to help ensure that your startup succeeds. For example, some micro-lenders require you to develop a business plan that meets their standards before lending money. The goal of a microloan is not just to make loans, but to help small businesses start and grow so they can benefit the community.

You don’t have a long credit history. All too often, a relatively small amount of money is all that stands between would-be entrepreneurs and their dreams. For those who lack a good credit history, even $2,000 or $5,000 can seem out of reach. Micro-lenders are more willing than traditional lenders to work with applicants with a limited credit history or a poor credit score.

You have limited access to traditional loans. Micro-lenders generally focus on underserved communities or specialized groups, such as military veterans, women, immigrants, people with disabilities and members of minority groups, who are more likely to have difficulty getting traditional loans. If you can easily get a traditional loan, on the other hand, a microloan probably isn’t the right answer for you.

You plan to use the loan proceeds for equipment, machinery, operating expenses or working capital. Micro-lenders generally have specific restrictions on what you can or can’t do with the proceeds of the loan, so make sure you understand what the micro-lender you’re approaching offers.

Do you think microloans sound like such small potatoes that getting one can’t possibly help you? Think again. Many loan recipients use microloans to help build their business credit ratings. By paying back a small loan on time and in full, you can help establish good credit for your business, making it possible to get larger and larger loans in the future. (Find out if the micro-lender you’re applying to reports payments to commercial credit reporting agencies.) You can work with your micro-lender to develop a business plan that helps you grow your startup in stages, working with the small amount of capital they can provide you and gradually progressing to obtaining more capital from more traditional sources.

Want to find out more about microloans? Visit the SBA’s website for a list of microloan providers near you.