SBA Microloans: What Are They? How Do You Get One?

SBA Microloans: What Are They? How Do You Get One?

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In addition to its flagship 7(a) loan program, the SBA also partners with nonprofit organizations across the United States to provide microloans to small businesses and startups. Through this program, you can borrow up to $50,000 with repayment terms up to seven years. To apply, you’ll need to find a microlender in your area.

What is an SBA microloan?

The SBA microloan program provides loans of up to $50,000 to existing small businesses and startups that are underserved by traditional financing avenues. The microloans are made through nonprofit organizations across the United States, with each organization serving a different geographic area and setting its own rates, terms and requirements for the microloans. To find a SBA-approved microlender near you, contact your local SBA District Office.

Most SBA microlenders serve a specific geographic area, ranging from a region of the country to specific counties in a state. The SBA maintains a list of lenders available in each state, but you can also contact your local SBA office for more information on microlenders in your area.

What can an SBA microloan be used for?

The SBA does impose some restrictions on the microloan program, such as how the loans can be used. For instance, microloans can only be used for certain business purposes, which include:

  • Working capital
  • Inventory or supplies
  • Furniture or fixtures
  • Machinery or equipment

You cannot use a SBA microloan to refinance existing debt or to purchase real estate. If you need to refinance debt or purchase real estate, consider other SBA loan programs, such as the 7(a) or 504 loans.

Terms and rates of SBA microloans

While terms and rates for SBA microloans will depend on which lender you’re using, the SBA does set maximum loan amounts and repayment timelines. Beyond that, the interest rates, fees and collateral requirements are left up to the discretion of your lender.

Maximum loan amount
Maximum repayment termAs of Oct. 1, 2021, maximum term on a new microloan is 7 years
Average interest rates7.00% - 9.00%
FeesVaries by lender, but fees may include closing costs of up to 2% to 3% of loan amount.
CollateralGenerally required
Personal guaranteeGenerally required
Prepayment penaltyGenerally none
Cosigners/co-borrowersGenerally allowed (and in some cases required)

Eligibility requirements: who can apply for an SBA microloan?

Each lender will set their own SBA eligibility requirements for the microloan program. However, businesses generally must meet the following criteria:

  • Be a startup, newly-established or growing for-profit small business (nonprofit childcare centers may also be eligible)
  • Located in an area served by the lender
  • No bankruptcies or foreclosures in the last one to two years
  • Have sufficient income to support loan repayment
  • Good payment history with other business or personal creditors (suppliers, landlords, etc.)
  • Demonstrate need for financing and/or inability to get bank financing

In general, SBA microlenders will lend to businesses that are not bankable — that’s to say, businesses that fall short of a bank’s eligibility criteria. This means startups, businesses that are too inexperienced or have limited credit or financial records and business owners who have limited or below average credit.

Many SBA microloan lenders have few requirements (or none at all) regarding the age of the business, the business credit score or the owner’s personal credit score. One of the larger microlenders, Accion Opportunity, for example, accepts applications from business owners with low credit scores, as well as startups that have outside experience in their industry and businesses that only have $50,000 in annual revenue. Because eligibility standards vary so much across lenders, we recommend borrowers contact their microlender directly for more information about what it takes to qualify.

How to apply for an SBA microloan

The application method for an SBA microloan varies depending on the lender. Some lenders will want you to visit their offices to apply, while others may require you to call one of their lending specialists to get started.

When you apply, you’ll generally be asked for some or all of the following documentation (some it may not be necessary if your business is a startup):

  • Business plan
  • Business and personal tax returns
  • Balance sheets and profit and loss statements
  • Financial projections or budget
  • Resumes of business owners
  • Personal financial statements
  • Personal credit report
  • Articles of incorporation
  • Applicable business licenses and permits

The entire application and funding process will take up to 120 days from loan approval depending on the organization. You may be required to complete training as part of the application process or as a condition of approval. But even if you aren’t required to take training, most of these organizations offer classes, workshops and one-on-one mentoring on a wide variety of topics, including writing a business plan, sales strategies and accounting. We recommend business owners take advantage of these resources, especially when starting a new business.

Microloans advantages and disadvantages

If you’re deciding to apply for an SBA microloan, here are several advantages and disadvantages to consider before applying.


  • Provides financing options for startups and established businesses
  • Offers interest rates that are often lower than online lenders
  • Helps underserved markets
  • Recently extended loan terms from six to seven years (for new microloans after Oct. 1, 2021)


  • Limited in the use of the loan
  • May require collateral or personal guarantee
  • Lenders may impose fees, such as closing costs
  • Loans cannot exceed $50,000
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Alternatives to SBA microloans

Depending on your business needs, microloans might not be the best fit. Here’s a list of several alternative options and how they compare to SBA microloans.

Online lenders: Online lenders could have quicker turnaround, higher loan amount limits and less strict application criteria than SBA microloans. On the flipside, these lenders also tend to have higher interest rates.

Business credit cards: Small business credit cards can provide an easy way for startup businesses to get fast access to credit. Unlike a loan, a credit card would only require repayment on the money used, up to the credit limit. However, business credit cards tend to have higher interest rates than loans.

SBA 7(a) loan: SBA 7(a) loans can allow you to use the money for purposes that SBA microloans don’t allow, like purchasing real estate. SBA 7(a) loans allow you to get all the benefits of going through the SBA, such as lower interest rates. As with microloans, you’ll go through a partner lender for a 7(a) loan.

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