What is a microloan?

A microloan is specifically designed to provide small amounts of capital to entrepreneurs and small business owners, particularly those operating microenterprises. These loans typically cater to individuals or businesses that may have difficulty accessing traditional financing options due to lack of credit history, collateral, or the small scale of their operations.

The purpose of microloans is to support the growth of small-scale businesses, which in turn helps stimulate local economies, create jobs, and foster entrepreneurship. This funding mechanism is particularly effective in regions where larger financial institutions may not reach or prioritize lending to small businesses.

In contrast to other options, large sums of money for established businesses do not align with the concept of microloans since they specifically target smaller funding needs. Investments from venture capitalists focus more on high-growth potential startups rather than small businesses requiring modest funds. Grants typically have specific criteria and are not meant for profit generation, which differs from the intent behind microloans. Thus, the best representation of what a microloan is would be a small loan often used to support microenterprises.