Whether you’re just getting started or ready to take your business to the next level, a microloan from the U.S. Small Business Administration (SBA) can help your small business grow.
Microloans are available in amounts of up to $50,000. They can be used for cash on hand to run your business (aka working capital) or pay for inventory, supplies and equipment. Get a quick overview of microloans in less than a minute here:
If you think an SBA microloan could help your business, here are a few things to know about how the loan program works, who’s eligible, how you can apply and ways you can use the money. Read on to learn about:
While any eligible small business can apply for an SBA microloan, the program is designed to help historically underserved populations, including women, minorities, veterans and low-income entrepreneurs who may have difficulty obtaining small business loans from banks.
While the SBA establishes guidelines for the microloan program, it doesn’t provide loans directly to small businesses. The SBA lends financing to authorized intermediary lenders, which are nonprofit community-based organizations with lending experience. These intermediaries manage the microloan program for eligible borrowers.
SBA microloans are available in amounts of up to $50,000. The average microloan amount is around $13,000, and interest rates generally range from 8% to 13%. However, lenders and borrowers work together to negotiate interest rates on a case-by-case basis.
The maximum loan term for an SBA microloan is six years, but terms vary based on how much you borrow, what you plan to use the money for and the lender’s requirements.
Each intermediary lender has its own rules about loans and credit. Most of the time, intermediaries need some kind of collateral in addition to a business owner’s personal guarantee.
While microlenders will set their eligibility and repayment terms, the following are common requirements:
Your business must be registered, and it must be located and operating legally in the United States or its territories.
Lenders want to invest in businesses that will be successful. To demonstrate your commitment to launching or growing your business, you’ll need to show you’ve already invested time and your own money in your business.
The SBA microloan program is designed for people who are unable to secure funding from other sources. So, you may need to show that you tried and were unable to get business financing from other lenders.
Since the Small Business Administration provides microloan funds to intermediary lenders, you’ll need to work with an SBA-approved lender to apply for a loan.
In some situations, you may need to participate in training or planning sessions to help you launch or expand your business before the lender reviews your application.
Each lender that participates in the SBA microloan program has its own eligibility requirements and is responsible for making loan decisions. The Small Business Administration does not evaluate loan applications.
In general, here are the factors SBA microloan lenders will likely consider when making a loan decision.
Microloans can support small businesses in several ways. Use them to rebuild, reopen, repair, upgrade or improve your small business with a budget of less than $50,000.
If your loan application is approved, you can use the funds for:
You can’t use the money to pay off existing debt or buy real estate.
The type of equipment and supplies you need will vary, depending on the type of business you have. So, let’s take a look at some specific ways individual businesses can use the money.
Let’s say you have a clothing boutique. You were strapped for cash when you opened, so you used secondhand supplies, but now you’re ready to give your startup a facelift. You can use the money from an SBA microloan to buy new shelves, racks, mannequins and hangers to display clothing.
Whether you’re getting ready to launch your business or expanding an existing one, having the right business insurance is essential to protect your investment.
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If you have questions, our licensed, U.S.-based insurance advisors can help.
Kim Mercado is a content editor at NEXT. She writes and edits content for small business owners, and enjoys helping entrepreneurs solve their business challenges and learn about insurance. Kim has contributed to Salesforce, Samsara and Google.
You can find Kim trying new recipes and cheering the 49ers.
