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November 15, 2019 / By Jared Cohen

Everything you Need to Know about the SBA Microloan Program

The US Small Business Administration (SBA) offers a unique Microloan Program for small businesses that cannot receive any funding from major banks and other lending institutions. Unlike other SBA loans, where the agency just guarantees the loan amount, the funds in the Microloan Program come directly from the SBA. Generally, non-profit intermediaries acquire the loan amount from the SBA and then distribute the capital to individual borrowers.

A small business can borrow any amount from $50,000 or less to $5 million under this program in order to meet with its business requirements. However, this will depend upon how they qualify for the SBA Microloan Program. That being said, the loan amount can be used for a variety of purposes, such as to purchase raw materials, manage staff reimbursements, launch an advertising or marketing campaign, etc. Nonetheless, these funds cannot be used to refinance any debts or to buy a property.

SBA Microloan Program usually involves shorter terms, which means that the interest accumulated on the loan amount would be lesser when compared to the other types of SBA loans. Normally, they have interest rates ranging from 6.5% to 13% and repayment terms of up to 6 years.

Applying for the SBA Microloan Program

The SBA Microloan Program can be an amazing option for those small businesses that expect a positive impact on their business with a little funding. However, a borrower would need to meet the qualification terms and minimum requirements set by the intermediary lender to apply for the loan program. Note that the loan can only be obtained through local intermediaries, so the application process and requirements would depend upon the policies of the intermediary lender.

Most of the lending institutions would require the borrower to have a personal credit score of at least 600 to qualify for the SBA Microloan Program. The borrower would also need to sign a personal guarantee as well as put up collateral for the loan. Also, as it is seen with any type of SBA loan, the borrower would also need to present a well-devised business plan while applying for the SBA Microloan Program. This is especially important for startups and small businesses that are new to the industry and do not have much experience in the field.

Although the loan amount would be much smaller in the SBA Microloan Program, the application process would be very thorough. Sometimes, it could take even up to 4 weeks or longer to get the loan approved and receive the funds. That is why the Microloan Program might not be suitable for those looking for some immediate funding.

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