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The U.S. Small Business Administration (SBA) offers microloans to small businesses that may have a difficult time finding traditional funding.
A microloan can be for as much as $50,000 but borrowers usually take out even smaller amounts for their business needs.
Read on to learn more about SBA microloans, including how to qualify for one and apply.
Page written by Kat Cox. Last reviewed on August 12, 2024. Next review due October 1, 2027.
The SBA microloan program was started to help small businesses and some not-for-profit childcare centers startup and expand their businesses. With an SBA microloan, the SBA funds money to designated nonprofit, community-based organizations as intermediary lenders. These groups administer the microloan program for qualified borrowers, including technical assistance and managing the loan program.
The SBA microloan program will loan up to $50,000 to a qualified borrower, but the average size of a microloan is around $13,000.
Each community-based organization or nonprofit who participates in the SBA microloan program will set their own terms and conditions, but you can expect the following:
A qualified borrower can use an SBA microloan to expand their business, including using it for:
While you can use this money to re-open, repair or improve your small business, the SBA stipulates that no borrower can use SBA microloan funds to pay off other existing debts or purchase real estate.
The SBA microloan program is meant for startups and businesses who don’t have much time in business under their belts. But it’s also open for for-profit small businesses that need funding, as well as childcare programs.
Most SBA loans include certain eligibility requirements, such as requiring that you be a small business (based on your employees and annual revenue), for-profit and operate in the U.S. and its territories. You also need to be “in good standing”, meaning that your business is registered and operating legally and that you don’t have any outstanding taxes or government debts. You’ll also need to be able to show that you have tried other ways to finance your business to prove that you need the SBA loan.
Eligibility requirements for the microloan program change depending on which nonprofit organization is managing the loan program on behalf of the SBA. In general, you will need to be able to provide some type of collateral and a personal guarantee for your business. Often the item you purchase with the loan, especially equipment, can serve as collateral.
To work out the monthly repayments of your loan, use our SBA loan calculator here.
The first step in getting an SBA microloan is to find a local SBA-approved intermediary. From there, they will set the terms for your microloan and guide you through the application process.
While the lender will determine the full application process, you should be prepared to gather your documents. You’ll need financial documents, such as tax returns, financial projections and the balance sheet and income statement, to name a few. You’ll also need identifying documents, including personal identification as well as business licenses and permits. You should also be able to list your collateral and business assets.
You should also be prepared to explain the purpose of your business loan, such as your business financial needs and your business plan.
SBA microloans offer a number of advantages, including:
The biggest downside of a microloan is its size – you can’t get more than $50,000, which may not be enough to cover your needs.
You can look at the SBA’s microlender website to find a local microlender. But if you’d like help finding the right loan with you, financial services professionals like Swoop can help.
Download the Swoop app today to see which loans may be right for your small business. We can help you compare options and manage your financing.
Written by
As a B2B finance content specialist, Kat Cox's goal is to distill complicated financial issues into useful information for small business owners, to save them time they could be using to build their companies. Her work has been featured in Forbes and on financial health platform Nav.com. When she's not writing blogs, web copy, or fiction, Kat can be found walking her dog or singing karaoke in Austin, Texas.
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