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 six years. To apply, you’ll need to find a microlender in your area.
- What is an SBA Microloan?
- Terms and Rates
- Eligibility Requirements
- Application Process
- List of SBA Microlenders
What is an SBA Microloan?
The SBA microloan program is designed to provide loans 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.
The SBA does impose some restrictions on the microloan program, such as how the loans can be used and what the maximum repayment term is. 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, you should consider other SBA loan programs, such as a 7(a) loan or 504 loan.
SBA Microloan Terms and Rates
Terms and rates for SBA microloans will depend on which lender you are using. The SBA does set some maximums in regards to the amount you can borrow and how long you have to pay. Beyond that, the interest rates, fees and collateral requirements are left up to the discretion of your lender.
|Maximum Loan Amount||$50,000|
|Maximum Repayment Term||6 years|
|Average Interest Rates||8% - 13%|
|Fees||Vary by lender, but may include:
|Personal Guarantee||Generally required|
|Prepayment Penalty||Generally none|
|Cosigners/Co-borrowers||Generally allowed (and in some cases required)|
Each lender will set their own eligibility standards for the microloan program. However, businesses generally must meet the following criteria:
- Be a for-profit small business (non-profit 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 businesses that are too inexperienced, startups, businesses that have limited credit or financial records, or business owners who have limited or below average credit.
Many SBA microlenders will make few or no requirements regarding the age of the business, the business credit score or the owner’s personal credit score. For instance, LiftFund, one of the larger microlenders, accepts applications from startups and requires no minimum personal credit score from business owners. In fact, the organization states the average personal FICO score of its borrowers is 575. Because eligibility standards vary so much across lenders, we recommend borrowers contact their microlender directly for more information about what it takes to qualify.
Whether you can apply online for a microloan depends on the lender. Some lenders will require you to make a visit to their offices to apply, and others may require you to call one of their lending specialists to get started. When you apply, you will generally be asked for some or all of the following documentation (some it may not be necessary if your business is a startup):
- Written 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 a few weeks to a couple of months depending on the organization. You may be required to complete training as part of the application process or as a condition of approval. 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, which can include: writing a business plan, sales strategies, and accounting. We recommend business owners take advantage of these resources, especially when starting a new business.
Most SBA microlenders only 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, which you can access here. You can also contact your local SBA office for more information on microlenders in your area. For reference, the table below shows the top 10 SBA microlenders.
|Lender||# of Loans||Total Loan Volume||Avg. Microloan||Geographic Area Served|
|Justine Petersen||367||$1,463,554||$3,988||Parts of Kansas, Missouri and Illinois|
|Business Center for New Americans||266||$1,035,000||$3,891||New York City|
|Economic and Community Development Institute||218||$1,571,391||$7,208||Parts of Ohio|
|Finanta||185||$1,624,400||$8,781||Parts of Pennsylvania|
|Oregon Association of Minority Entrepreneurs||131||$1,075,430||$8,209||Parts of Oregon and Washington|
|Accion||105||$1,173,452||$11,176||Parts of CT, DE, GA, IL, IN, MD, MA, NH, NJ, NY, NC, PA, SC, VA|
|Rural Enterprise Assistance Project||97||$679,575||$7,006||Parts of Nebraska|
|Flagship Enterprise Center||83||$1,693,002||$20,398||Parts of Indiana|
|LiftFund||83||$672,488||$8,102||Parts of Arkansas, Louisiana, Mississippi, Texas|
|Renaissance Economic Development Corporation||76||$1,662,695||$21,878||Parts of Michigan, Mississippi, New York|