Microcredit for unemployed people in Ireland: business micro-loans and community lending

Two meanings of microcredit in Ireland

The word microcredit covers different things, and it helps to know which you need. One is a business micro-loan for someone who wants to set up or expand a very small enterprise. The other is a small personal loan on affordable terms, offered by community and credit union lenders to people on low incomes.

Unemployed people can use either route, but the questions asked are different. A business lender focuses on the idea and the numbers behind it, while a community lender focuses on whether you can afford the repayments.

Business micro-loans: Microfinance Ireland

Microfinance Ireland is a state-backed lender that provides loans to small and micro businesses that might not qualify for a bank loan. It also serves people starting a business, including those who are currently out of work, provided the business is viable and based in Ireland.

Applications are usually made with the help of a Local Enterprise Office or on the lender's own website. Loan sizes, rates and conditions change, so check the current terms before you plan around them.

• Suitable for start-ups, growing micro-businesses and sole traders
• A business plan and cash-flow forecast are normally required
• A decision depends on viability, not only on your personal credit record

Preparing a business micro-loan application

Lenders want to see that you understand your customers, your costs and how you will repay. A clear one-page summary of what you sell, who buys it and what you need the money for will make a stronger start than a long document with no figures.

Local Enterprise Offices offer mentoring and training for people starting a business, and the Department of Social Protection has had enterprise supports for those leaving unemployment payments. Ask whether any are open to you before you borrow.

What numbers to bring

Prepare a list of start-up costs, an estimate of monthly sales and expenses, and a realistic view of when income will start. If you are unsure, aim for cautious assumptions rather than hopeful ones.

Community and credit union lending for personal needs

For personal needs, such as replacing an essential appliance or paying a school cost, the nearest equivalent to microcredit is a small credit union loan. Credit unions are member-owned and regulated, and some work with community lenders to provide low-cost loans to people who would otherwise turn to high-cost credit.

Ask your local credit union which loans it offers, whether you need to have saved first and whether it takes part in a community loan arrangement. Your savings record often counts as much as your income.

The It Makes Sense loan, offered by participating credit unions to people on social welfare, is one example of this kind of community lending. Terms such as the maximum amount and interest cap are set out by the Irish League of Credit Unions, so check the current figures before applying.

An example of choosing the right route

Take someone who wants to start a small mobile repair service. A business micro-loan, supported by a plan and local mentoring, fits that goal. If the same person needs a cooker for the household, a small credit union loan is the better tool.

Mixing the two is a common mistake. Using a business loan for personal costs can leave the business short of the money it needs to earn the repayments.

Looking at the full cost

Compare lenders using the APR and the total repayable, and ask about arrangement fees, insurance and the penalty for repaying early. A small loan can cost a lot more if a high rate or fees are added.

Be careful about how much is needed. Borrowing a little less than the maximum available usually means lower repayments and less pressure if the start is slower than expected.

Free advice and warning signs

The Money Advice and Budgeting Service offers free budgeting help and can review your plans for personal borrowing. For business ideas, the Local Enterprise Office is a free first stop.

Be suspicious of anyone who calls themselves a microcredit provider but asks for money before lending, contacts you by social media or has no entry on the Central Bank of Ireland's register.

If your plans change, say so. Lenders and advisers deal with delayed starts and slow first months all the time, and they can only help if they hear about the problem early.