The Ultimate Guide To SBA Microloans

Businesses that need smaller amounts of capital aren’t limited to high-interest, short-term loans. The SBA Microloan program offers businesses and startups up to $50,000 with competitive rates and repayment terms of up to six years.

What Is An SBA Microloan?

An SBA microloan is a small business loan of up to $50,000 offered through the Small Business Administration’s Microloan Program. These loans are issued by SBA-approved nonprofit intermediary lenders and typically come with lower interest rates and longer repayment terms than many short-term financing options.

SBA microloans are available to small businesses, startups, home-based businesses, and sole proprietors, and can be used for most business expenses.

How The SBA Microloan Program Works

The SBA does not lend money directly to small businesses. Instead, it provides funding to nonprofit and community-based organizations that act as intermediary lenders and issue SBA microloans to eligible borrowers.

Unlike other SBA loan programs, the SBA does not set strict limits on interest rates, repayment terms, or eligibility requirements for microloans. These details are determined by each intermediary lender.

SBA microloan funds can be used for most business purposes, such as purchasing inventory or equipment or covering working capital needs. However, microloans cannot be used to refinance existing debt or purchase real estate.

SBA Microloan Rates & Terms

The maximum SBA microloan amount is $50,000, though the average loan issued is closer to $13,000.

Interest rates vary by intermediary lender but typically fall between 8% and 13%. Repayment terms can extend up to six years, with monthly payments.

A down payment usually isn’t required. However, startups may need to contribute up to 20% of project costs, and business acquisitions may require a 10% down payment.

SBA Microloan Eligibility & Requirements

To qualify for an SBA microloan, borrowers must meet lender-specific requirements set by the SBA’s intermediary lenders. While exact criteria vary, most lenders look for the following:

Advantages & Disadvantages Of SBA Microloans

SBA microloans can be a strong funding option for small businesses and startups, but they aren’t the right fit for every situation. Before applying, weigh the pros and cons against your business’s financing needs and timeline.

How To Apply For An SBA Microloan

The first step in the application process is to find an SBA Microloan intermediary that lends in your area.  You can use the SBA’s Lender Match tool, or you can ask your financial institution for a referral.

Some nonprofit intermediaries will allow you to apply online, but most will require you to appear in person or speak to a lending specialist over the phone.

While the lender you work with will provide you with the details of their requirements and all documents needed for processing, there are a few items you can prepare in advance, including:

• Minimum of two years of business and personal income tax returns
• Balance sheets
• Profit and loss statements
• Personal financial statements
• Personal credit report
• Business plan and financial projections
• Business licenses and permits

Once you have gathered all the information required by the lender, your application will be complete. The entire process generally takes between 30 and 90 days. However, some lenders may get your funds to you as quickly as two to three weeks.

Some lenders may require classes, workshops, or other training as part of the application process. Others offer these programs but may not require them before disbursing funding. This training provides great opportunities for startups and small businesses and should be taken advantage of whenever possible.

Alternatives To SBA Microloans

If a Microloan isn’t the best fit, there are different types of small business loans that could be a more suitable choice.

The Bottom Line On SBA Microloans

SBA Microloans can provide the capital that startups and small businesses need to grow. Competitive interest rates and low repayment terms make this an appealing funding option for any business that meets all requirements.

SBA Microloans aren’t for every business, though. Businesses that require more capital or longer repayment terms may want to research the other SBA loan options available.