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Some small business needs are just that – small. When a hefty business loan is not required, a Small Business Administration (SBA) Microloan may fit the bill. This program is designed to help those who might not qualify for a traditional SBA loan because of low cash reserves, poor credit or lack of business-running experience. With the help of just a small sum of money, these businesses can often get off the ground.

Loan Limits and Terms

Experts have calculated that it costs about $30,000 to start a business from scratch. Thanks to the SBA Microloan program, borrowers can receive up to $50,000 to aid in the startup and expansion phases. In fact, the average Microloan is about $13,000, according to the SBA. The funds can be used for almost anything pertaining to growing the business. This might include ordering inventory and supplies, buying office furniture or fixtures, purchasing business equipment or machinery, and even as basic working capital. The two exceptions that SBA Microloans may not be used for are paying off existing business debts and buying business real estate property.

Because these are smaller loans, the repayment terms are shorter. All Microloans must be repaid within six years, with the exact terms depending on how big the loan is and how the funds will be used. Such factors will also determine the loan interest rate. Rates are affected by the going rate at the U.S. Treasury as well, but because Microloans have such a short repayment period, interest rates will generally be higher than on a standard SBA small business loan. The SBA reports that the Microloan rates average between 8 and 13 percent.

Finding a Lender

Microloans are not made directly through the SBA, but are administered by nonprofit, local SBA-approved lenders. These lenders are specifically chosen “so that they may provide micro-level loans, and business based training and technical assistance to start-up, newly established and growing small business concerns.” They are screened for their management and technical experience in order for them to act not only as lenders but as great resources and mentors for small start-ups.

Because each loan goes through individual lenders, the application and eligibility requirements can vary greatly. For example, some lenders may want borrowers to take certain training classes or have detailed business plans before completing the application process. The requirements are all designed to help the inexperienced business operator get valuable education to make their venture successful.

To contact an SBA-approved lender in your area, take a look at the SBA Microlender List by state. As of 2012, a few states, including Alaska, Rhode Island and Utah, did not have participating lenders. Interested borrowers in those states can contact the SBA directly for help in finding a lender.


Search for Small Business Loan Sources and receive your matched lender list
AND received FOUR free Business eBooks worth $39.95!
Search for Small Business Loan Sources