SBA Microloans: What They Are & How To Apply
This article is part of a larger series onBusiness Financing.
The Small Business Administration (SBA) microloan program is one of the most popular in the United States. An SBA microloan is a small business loan ranging from $500 to $50,000 that’s provided by an intermediary lender. The SBA provides microloan funds to the intermediary at a discounted rate. The intermediary then makes loans to small businesses, which repay their loans over a term of up to six years. Interest rates for SBA microloans range from 6% to 9%, with terms of up to six years. Microloans are available to startups and established businesses that are unable to obtain traditional financing.
How SBA Microloan Funding Works
Nonprofit organizations and other community development financial organizations provide microloans. These organizations often have missions that support economic growth in a defined geographic area. They can also support a specific sector of the population, such as minority-owned businesses. Often the qualification requirements set by the microlender, in addition to those set by the SBA, are specific to the sector or geographic area that the organization supports.
SBA Microloan Eligibility & Qualification Requirements
With this type ofSBA loan, the SBA has little involvement in the processing of the loan, aside from providing the initial funding to the microlender. The SBA microloan program sets basic guidelines regarding rates, terms, and standard eligibility requirements but ultimately leaves the decision-making and underwriting to the microlenders.
The SBA requires that microloan borrowers be for-profit businesses. Beyond that, the exact eligibility requirements are at the discretion of the lender. The standard eligibility requirements for the SBA microloan program are:
- For-profit small business:SBA microloans are only available to for-profit businesses. If you’re operating a nonprofit business, you’ll need to consider another type ofstartup business loan.
- Average credit score:Some SBA microloan lenders will accept credit scores as low as 600. In contrast, loans from traditional lenders are often limited to customers with credit scores of 680 or greater.
- Repayment ability:You’ll need to be able to demonstrate repayment ability. The exact indicator of repayment ability will be determined by the lender, but in general, adebt service coverage ratioof 1.25x or greater is considered sufficient.
- Collateral:Your SBA microloan lender may also require your loan to be backed by collateral. This protects the lender in the event that you default on your loan.
- Personal guarantee:A personal guarantee is typically required from all business owners with 20% or greater ownership interest in the business. A personal guarantee pledges that you’ll repay should the business not be able to repay.
While these are generic eligibility requirements for SBA microloans, there may be additional lender-specific requirements. Many SBA microlenders are nonprofit organizations that serve specific causes. As such, they may have additional qualification requirements such as restricting availability to veteran-owned businesses or women-owned businesses.
What an SBA Microloan Can Be Used For
There are some limitations regarding what an SBA microloan can be used for. Allowable uses of funds include working capital, purchase of inventory and supplies, and financing furniture, fixtures, machinery, or equipment. SBA microloans cannot be used to refinance debt or purchase real estate.
If you need financing to purchase real estate or to refinance existing business debt, anSBA 7(a)orSBA Express Loanmay be a better funding solution for your small business. Small businesses whose funding needs fall within the approved uses of SBA microloan funds can benefit from the reasonable rates and terms provided by the program.
SBA Microloan Rates & Terms
The rates and terms you can expect with an SBA microloan are:
- Maximum loan amount:$50,000
- Maximum repayment term:6 years
- Prepayment penalty:None
- Average interest rates:6% to 9%
- Application fee:$25 to $50
- Loan processing fee:高达150美元
- Closing costs:Up to 5% of the loan amount
The SBA stipulates that microloans cannot exceed $50,000 nor have repayment periods that extend beyond six years. Interest rates generally range from 6% to 9%. However, the exact rates and terms available for SBA microloans will vary by lender. Other fees, such as application fees, loan processing fees, and closing costs, also vary.
SBA Microloan Providers
SBA microloans are offered by intermediaries referred to as SBA microlenders. These SBA microlenders are area nonprofit organizations that serve specific geographic regions and have experience in small business lending and technical assistance. Many SBA microlenders also provide training and services to small businesses. This training can be very advantageous and is often offered for a small fee or for free. Such training opportunities can be very helpful as you start and grow your business.
To receive an SBA microloan, you’ll need to contact an SBA microlender that serves your geographic area. The table below will show you some of the SBA microloan providers in your state. A completelist of SBA microlendersfor each state, including contact information, can be found by clicking on the individual state.
Once you have located an SBA microlender for your geographic area, you can contact them to start the application process. If there are multiple SBA microloan lenders that serve your area, you may want to contact each to determine which lender will best suit your specific needs. Additionally, because specific rates and terms vary by lender, you may want to inquire with multiple lenders to find the best rates and terms available to your business.
SBA Microlender Providers by State
How to Apply
Applying for an SBA microloan involves four steps:
- Find a lender:Using either the table provided in this article or theSBA list of lenders,找到一个符合你的geograp SBA小额贷款hic region. Some regions have multiple lenders while others may only have one. Contact the SBA microlender to determine what you’ll be required to submit for your application.
- Gather documentation:The SBA microlender will let you know the specific documents that you’ll be required to provide, but in general, you can anticipate that you’ll need to submit a copy of your business plan, your personal and business financials, and proof of collateral.
- Complete the application:Applications will vary by microlender. Some may provide you with an opportunity to complete your application online while others may require it to be submitted in hard copy. The entire application process is left to the discretion of the SBA-approved microlender.
- Receive funding and begin repayment:Once approved, you can expect to receive funding within a few weeks. After receiving funding, you’ll begin making payments monthly throughout the term of your loan. SBA microloans don’t have prepayment penalties, so you can potentially save money by paying your loan off early.
The entire process, from application to funding, averages about 60 days but will vary by lender.
SBA小额贷款的优点和缺点
For many, SBA microloans are a great financing option. One advantage to SBA microloans is that you can receive funding faster than you would through other SBA loan programs. SBA microloans are also easier to obtain than traditional business loans, and they’re available to startup businesses. However, keep in mind that SBA microloans have limited uses, qualifications vary by lender, and interest rates are somewhat higher than SBA 7(a) loans.
PROS | CONS |
---|---|
Faster funding than other SBA loans | Cannot refinance existing business debt |
Easier qualification standards | Interest rates are higher than most SBA loans |
Available to startups | Eligibility requirements can vary by lender |
Alternatives to SBA Microloans
Not every state or region has an approved SBA microlender. If your area isn’t served by an SBA microlender or if you’re unable to obtain an SBA microloan, you may be interested in alternative sources of funding. Some good alternatives are:
- 个人贷款for business:Those that are unable to qualify for a small business loan could consider using a personal loan for business instead. A personal business loan allows you to get a loan based on your personal credit and finances, with proceeds going toward your business.
- Business credit card:If you have recurring working capital needs, asmall business credit cardcan be a relatively cost-effective alternative to an SBA microloan. Many credit cards offer introductory periods at 0% APR as well as cash back or rewards programs. These incentives can be beneficial if you regularly use credit cards.
- Crowdfunding:A fast-growing method of receiving financing is crowdfunding, which involves raising small amounts of money from a large number of people. This is usually done through an online platform, with the business owner offering goods or rewards in return for money.
Bottom Line
An SBA microloan can provide up to $50,000 through an intermediary microlender. Eligibility and qualification requirements vary by microlender, but the intent of the program is to provide funding to small businesses that cannot obtain financing through a traditional lender. If you need funds for working capital, inventory, or equipment purchase, an SBA microloan may be a good financing source for your small business.