SBA Microloans


SBA microloans are an excellent source of startup cash for small businesses, and a great alternative to business loans. They can be used to fund all kinds of necessary purchases – from equipment and machinery to furniture and supplies, and you don’t need to have perfect credit to qualify.

If you need money but you’re not after a major investment, an SBA microloan could be the perfect solution. So what is a microloan and does your business qualify?

What is a microloan?

Microloans are small business loans of up to $35,000 – $50,000. They are generally granted as startup funds for new businesses or for working capital for existing small businesses.

According to Terri Dennison, District Director of the Georgia SBA office:

“Microloans are ideal for home-based businesses, the self-employed, and others whose capital needs are smaller than the conventional business loan calls for.”

Does the SBA give out microloans?

One of the most popular lending streams for small businesses is the Microloan Program, which provides borrowers with up to $50.000. However, The SBA (U.S. Small Business Administration) doesn’t make the microloans. Instead, SBA lends money to non-profit lenders who grant microloans to small businesses and startups. Borrowers typically use lenders based in their own communities.

6 things to know about SBA microloans

  1. According to SBA, the average microloan given to small for-profit businesses is $13,000.
  2. The maximum loan term for an SBA microloan is 6 years.
  3. Interest rates for SBA microloans vary from lender to lender.
  4. An SBA loan can be used for most business expenses, except paying existing debt or purchasing real estate.
  5. Lenders will ask exactly what you plan to do with the loan and usually place restrictions on how you spend it.
  6. Some microloans obtained from the SBA and other related programs typically require you to fulfill specific business training and planning requirements, which vary from lender to lender.

Requirements of an SBA microloan

Your ability to qualify for an SBA microloan depends on your financial circumstances and credit rating. Applying for a microloan is not much different from applying for regular SBA loans, and there will be different qualification requirements from different lenders.

There are some things you can do to improve your chances of being approved, however:

  • Have a professional quality business plan (the more thorough and in-depth, the better your chances of getting approved).
  • Outline your intentions for the present and future.
  • Be prepared to be asked about your experience in business and your ability to start and run a successful business.
  • Outline your special skills, such as professional experience and credentials to reassure the lender.
  • Have invested personal money into the business.
  • Bring financial data with you, including budgets, a balance sheet, and any other proof you have of past performance and current assets.

Recent bankruptcies, outstanding tax liens, or delinquent payments will most likely disqualify you for an SBA microloan.

SBA microloan interest rates and terms

Interest rates and terms vary from lender to lender. However, most microlenders require a guarantee from at least one business owner.

While you’ll pay less interest for an SBA microloan than a credit card, you will probably pay higher rates than if you took out a traditional bank loan. This is because of the perceived risks of running a small business.

SBA microloans: are you eligible?

There are no strict criteria for applying for an SBA microloan, as long as you’re a small business based in the United States. To have the best chance of getting approved, however, you should wait to apply until you’ve been in business for at least one year.

How to apply for an SBA microloan

Before starting your application for an SBA microloan, consider your credit history and financial circumstances. Do you have a credit score of around 700? Have you been in business for a year, or do you have a solid business plan ready to launch? You should know with certainty that:

  • Your business idea is potentially profitable
  • You (and any partners) are professionally qualified to run the business
  • You can repay your loan in the stated timeframe

When you’re ready to apply, you can find a list of certified microlenders in your state on the SBA’s website. Their online referral tool breaks lenders down according to state and provides all the necessary contact information to get you started. Once you locate a microlender, you’ll need to give some basic information, including the following:

  • A solid business plan
  • Proof of income
  • Financial statements
  • Purpose of loan
  • Collateral
  • References
  • Government ID

After loan officers review your application supporting documents, they will create closing documents that will detail the amount, interest rate, and maturity date of your loan.

Getting ready to apply for a business loan requires proper preparation and attention to detail, so don’t rush it. Taking out an SBA microloan could be what gets your business idea off the ground, so make sure you only apply when you’re ready.

Benefits of working with SBA microlenders

Microloans provide a pathway for small business owners to fund their ventures and build credit. There are many benefits to working with a microlender, including:

They’re quick

Microloans can take as little as 2 weeks to come through. Traditional loans, on the other hand, can take months. This means no waiting around for your startup cash or small business funding.

You get business training

Many microlenders are mission-oriented and committed to building the economy in their areas. This means they will guide you through the loan process and offer advice to increase your likelihood of success, so it can be a great learning curve.

Lenders provide mentoring

Most lenders are equipped to deal with small business issues. This means working with an SBA microlender is like having a personal mentor who will guide you through your business training and help with any technical problems you face.

Nationwide, there are about 150 microlenders that work with SBA, funding small businesses and providing business loans for women. To find a microlender in your area, contact your local SBA district office.

Different types of business models need different types of business loans. If you own an e-commerce business and you’re wondering what type of business loan will be best for you and your business, check out this helpful guide from Biz2Credit on how to get an e-commerce business loan.

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