What is the Small Business Association Microloan Program?

Pin It

If you are a small business owner or you are planning to start a business in the upcoming years and you are creating a business plan, take the time to learn about the Small Business Administration Microloan Program. The Small Business Administration, which also commonly goes by the SBA, is an independent federal agency that was formed to aid small business owners and assist them with their concerns. The agency’s mission is to preserve competition and to help small businesses evolve to strengthen the economy. This is why the government offers business owners different funding options like the Microloan Program.

Who is Eligible for a Microloan?

Microloans are meant to help small business owners and other non-profit organizations that offer the community affordable childcare services. Unlike the general loans that are offered by the Small Business Administration, a microloan must be paid back in a maximum of six years. Most loans are paid back within 40 months. The loans are not designed to buy commercial property or to pay debts that you have already incurred to start or operate your business.

What Can the Funds Be Used For?

While there are restrictions, loan proceeds can be used to cover a variety of current and future business-related expenses. Before you decide that the microloan program through the Small Business Administration is the right funding option, it is important to review what the proceeds can be used for. Some of the approved options include:

  • Inventory
  • Office supplies
  • Working capital
  • Machinery or other commercial equipment
  • Office furniture
  • Fixtures for your business location or warehouse

How Much Can You Apply For?

There is a limit to how much you can apply for if you choose the SBA microloan program. If you are an eligible applicant, you can apply for up to $50,000 to be used towards one of the approved options above. While $50,000 is the max, not everyone is approved for the maximum amount. The average loan issued under this program is about $13,000.

Who Administers the Microloan Program?

While the Small Business Association is responsible for setting the eligibility requirements of microloans, the program itself is administered by intermediary lenders. Each lender has its own credit requirements and they will underwrite your application to determine what type of collateral is required for the loan to be approved. It is important to compare the intermediary lenders in your community to choose which lender you would like to deal with to submit an application or to have your loan serviced.

How Much Interest Will You Pay?

The interest rate for a microloan is typically a little higher than the market rate. This is because lenders may charge up to 7.75 percent over the cost of funds for loans more than $10,000 and up to 8.50 percent for loans less than $10,000. The average interest rate is between 8 and 13 percent.

Related Resource: 7(A) Loan Program

While the Small Business Association is in charge of granting the authority to offer microloans to lenders, the agency is not in charge of underwriting or reviewing loan applications. If you are in need of a small, short-term loan to fund your business operations or upcoming purchases, compare the Small Business Administration Microloan Program to other loan programs to decide which one makes the most sense.

Pin It