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SBA Microloans Explained

The SBA Microloan program was designed to assist low-income, women, veteran, and minority entrepreneurs and small business owners. The program also provides business training to borrowers.


What is an SBA Microloan?


SBA Microloans are direct loans provided to small businesses and not-for-profit childcare centers through nonprofit intermediary lenders. The loan amount is from $500 to $50,000.

SBA Microloans are similar to SBA 7(a) loans as they can be used for a wide array of purposes, from working capital to buying equipment and inventory.


Eligibility


The basic eligibility requirements for an SBA Microloan are:

  • Your business is a for-profit company or a non-profit childcare center.

  • Your business has average credit, as microlenders work with businesses with limited credit history

  • You have a business plan that showcases you have the ability and knowledge of how to pay back your loan.

  • You have business assets which can be used as collateral.

  • You do not have an extensive criminal record.

Terms


According to the SBA website, loan repayment terms will be based on:

  • Loan amount

  • Planned use of funds

  • Requirements determined by the intermediary lender

  • Needs of the small business borrower

The maximum repayment term for an SBA Microloan is six years and interest rates are generally between 8 and 13%.


Applying


The SBA website has a search tool to help you connect with SBA Microloan lenders all across the United States. The loan application process will take at minimum a time of 2-3 weeks.


Benefits


Like other SBA loans, the advantages of an SBA microloan are a long repayment period and a lower interest rate. Additionally, compared to other financing options, microloans have lessened restrictions to help struggling business owners.


Additionally, the application process is simple and relatively quick, taking usually between 2-4 weeks.


SBA Microloans are good if you need a relatively small amount of money, are ineligible for other types of funding, or if you need several years to repay a loan.


It would be best to avoid SBA Microloans if your business needs more than $50,000, you are buying real estate, or if you need the loan money immediately.


Conclusion


SBA Microloans have favorable terms and conditions that are very helpful for start-ups and small businesses. The SBA Microloans may not provide as much capital as other SBA loans, but they can still provide your business with the initial funding it needs.

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