What is a microloan, and how to get one in Switzerland?

Microloans are small business loans that provide microenterprises and self-employed people with access to finance without the usual bank collateral. In Switzerland, microloans typically range from CHF 100 to CHF 50,000 and have a term of no more than three years. Microcredits were initially introduced in developing countries to promote entrepreneurship. They are now also widely used in industrialized nations such as Switzerland to help economically underrepresented groups.

The requirements for microloans are less restrictive than for conventional business loans. A solid business idea and realistic market opportunities are required. Applications are made by submitting the relevant documents and attending a consultation with a microcredit provider.

Interest rates are higher on average than for conventional loans due to the higher risk associated with lending to people with a low credit rating.

In Switzerland, several specialized providers, such as Microcredit GO!, Swisspeers, and Microcédit Solidaire Suisse, offer microloans.

What is the definition of a microloan?

A microloan is a form of business loan characterized by small loan amounts, short terms, and lender flexibility. The concept of microcredits was originally developed to provide entrepreneurs in developing countries with small start-up capital.

Today, the microcredit model is also used worldwide in industrialized countries such as Switzerland. The aim is to give people classified as “not creditworthy” by traditional banks access to finance. Microloans are particularly important for microenterprises, the self-employed, and people with business ideas. In contrast to ordinary corporate loans, collateral such as equity is not necessarily required.

Microloans provide economic support for a region. The success rate of these small loans is high, and demand is increasing. By offering training and advisory services, many microcredit lenders support their borrowers not only financially but also in developing profitable business models and management skills.

The typical microloan amount is between CHF 100 and CHF 50,000. The loans are usually repaid in monthly installments over a period that rarely lasts longer than 3 years.

What are the requirements for a microloan?

The requirements for a microloan in Switzerland are not as strict as for a traditional corporate loan from a bank. Banks require collateral before they will lend money to businesses.

Applicants must be seen as capable of setting up and running a company. Furthermore, the market opportunities of the product or service must be present and convincing. The loan repayment must be realistic based on the liquidity plan.

Applicants must also have no outstanding debt enforcement proceedings, be Swiss or have a B or C residence permit, and have lived in Switzerland for at least one year.

A business plan is not always required, but it doesn’t hurt. Providers in Switzerland usually work with you to draw up a budget for the current and the coming year. This context answers the most important questions of a business plan.

How do you apply for a microloan?

Applying for a microloan is easy. Start by researching various microloan providers. Compare their conditions, interest rates, and repayment terms. Make sure you choose a provider whose offers and requirements match your possibilities.

Before you apply, collect all the necessary documents. This includes simple things such as a valid ID, proof of income and residence, and documents that prove your business idea and its market opportunities. If necessary, also prepare a detailed business plan. This should contain a clear description of your project, a market analysis, an overview of expected income and expenses, and a liquidity plan.

Contact the microcredit provider and arrange a consultation. Your business idea and financial situation will be discussed during this meeting. If everything looks good, you will soon have your microloan. It usually only takes 4 to 6 weeks from the initial consultation to the loan, although there are individual cases where it takes several months.

How do micro and personal loan applications differ?

Applying for micro and personal loans has some differences. In contrast to applying for consumer loans, the business concept is analyzed first and foremost for microloans. The borrower’s creditworthiness is of course still checked, as they are privately liable with their own assets if there is no limited liability company.

What costs and fees are incurred?

The interest rates for microloans are often higher than for traditional business loans. This is because microloans represent a higher risk for the lender, as they are also granted to people with lower creditworthiness. Interest rates vary depending on the lender and the borrower’s circumstances. Typically, the effective interest rate is between 5% and 13% per year.

Many lenders also charge a processing fee for setting up the loan. This fee covers processing the loan application, the credit check, and managing the loan. The processing fee is either a fixed amount or a percentage of the loan amount. Usually, these fees are between 1% and 5%.

Late fees are incurred if you do not pay your loan installments on time. The penalty fees are specified in the contract, either as a fixed reminder fee or as a percentage of the late payment.

Consulting and training fees apply if the microloan offer is linked to paid consulting or training services to help borrowers run their businesses successfully. However, in many cases, the costs of such services are already included in the loan offer or are subsidized.

Who offers microloans in Switzerland?

There are not many microloan providers for start-ups in Switzerland. Kredite Schweiz has a separate article with an overview of Swiss credit institutions. The following are the three best-known providers of microloans.

• Mikrokredite GO is a company supported by the canton of Zurich, the city of Zurich, Zurich Cantonal Bank, and Migros Culture Percentage. Information events are held regularly for people who want to become self-employed. Mikrokredite GO currently offers a fixed annual interest rate of 6.25%. The association provides microloans of up to CHF 40,000.
• Swisspeers is a crowdlending platform that grants microloans to Swiss entrepreneurs, among others. The interest rates here are between 2.5% and 13.5%.
• Microcédit Solidaire Suisse (MSS) is a foundation for microloans in Lausanne. George Aegier founded it in the 1990s in response to the rise in unemployment in Switzerland at the time. The foundation provides microloans of up to CHF 30,000.