Key takeaways
- SBA Microloans are the smallest loans offered by the Small Business Administration and usually come in amounts between $10,000 and $50,000.
- SBA Microloans are ideal for small startups, borrowers with limited collateral, or those who just need a small financial boost to get through a rough period in their business.
- To qualify for an SBA Microloan, businesses must have positive cash flow, a decent credit score, and at least two years of experience in the industry.
- SBA Microloans require collateral and a personal guarantee.
SBA Microloans, which usually come in amounts between $10,000 and $50,000, are the smallest loans offered by the Small Business Administration. SBA Microloans are ideal for small startups, borrowers with limited collateral, or those who just need a small financial boost to get through a rough period in their business.
How to Qualify for SBA Microloans
While borrower qualifications and eligibility can vary slightly between lenders, in general, SBA Microloan requirements include:
For existing businesses over 2 years old:
Business must have positive cash flow
Decent credit score (minimum of 575 for many lenders, though a score of 620-640 is preferred)
At least two years of experience in the industry
Sufficient collateral, or a co-signer with collateral and good credit
For start-ups:
Owners must have at have put at least 25% of their own funds in the business
Good/decent credit
At least two years of industry experience
Sufficient collateral, or a co-signer with collateral and good credit and the ability to potentially repay the loan
Strong business plan, including financial projections and market analysis
In addition to the qualifications above, a business must also meet the general eligibility requirements for SBA loans, such as being in an approved industry (i.e. no gambling, lending, real estate investment, or speculation-based businesses allowed) and being a for-profit company based in the U.S.
SBA Microloan Terms
SBA Microloan terms include:
Loan Size: Usually $10,000 to $50,000 (average of around $14,000). Some lenders may offer microloans as small as $500.
Loan Term: Varies, but cannot exceed 6 years
Interest Rate: Can vary between 6.5% and 13% but average is 7.5%
SBA Microloans Require Collateral and a Personal Guarantee
As mentioned above, SBA Microloans do require collateral. Collateral for SBA Microloans can be in the form of:
Commercial real estate, business equipment, unpaid invoices, and other business assets
Personal property, including homes and cars
Any business assets purchased with the SBA microloan
In addition to requiring collateral, SBA microloans also require a personal guarantee, which states that a lender can go after a borrower’s personal assets if they default on the loan. Plus, SBA microloans require that a borrower be of “good character,” which typically means that they shouldn’t have a history of fraud, theft, or other similar crimes.
SBA Microloans vs. SBA 7(a) Loans
Many borrowers who are considering an SBA microloan might also be looking into the SBA’s more popular 7(a) loan program. When compared to an SBA microloan, the SBA 7(a) loan can offer much larger loan amounts (up to $5 million), and typically has lower interest rates. 7(a) loans are usually offered in minimum amounts of $30,000, so if a borrower has good credit (640+), and is looking for a loan of more than $30,000, they may want to consider an SBA 7(a) loan.
Related questions
What is an SBA Microloan?
An SBA Microloan is a loan offered by the Small Business Administration (SBA) that ranges in size between $500 and $50,000. It is a great option for entrepreneurs who may find it difficult to get other kinds of SBA loans due to not having great credit. Many microloan borrowers are women, members of minority groups, have lower incomes, or experience other barriers to getting the funding they need to start a business.
SBA Microloan terms include:
| Loan Size | Loan Term | Interest Rate |
|---|---|---|
| Usually $10,000 to $50,000 (average of around $14,000). Some lenders may offer microloans as small as $500. | Varies, but cannot exceed 6 years | Can vary between 6.5% and 13% but average is 7.5% |
What are the benefits of an SBA Microloan?
The SBA Microloan Program offers a range of benefits for entrepreneurs, especially those who may find it difficult to get other kinds of SBA loans due to not having great credit. These benefits include:
- Loans ranging from $500 to $50,000
- A great option for entrepreneurs with lower credit scores
- A great option for women, members of minority groups, and veterans
Despite these benefits, SBA microloans still require borrowers to have good credit, and usually require collateral, which may not make them the best choice for many entrepreneurs in disadvantaged communities.
What are the eligibility requirements for an SBA Microloan?
SBA Microloans have eligibility requirements that include:
- For existing businesses over 2 years old:
- Business must have positive cash flow
- Decent credit score (minimum of 575 for many lenders, though a score of 620-640 is preferred)
- At least two years of experience in the industry
- Sufficient collateral, or a co-signer with collateral and good credit
- For start-ups:
- Owners must have at have put at least 25% of their own funds in the business
- Good/decent credit
- At least two years of industry experience
- Sufficient collateral, or a co-signer with collateral and good credit and the ability to potentially repay the loan
- Strong business plan, including financial projections and market analysis
In addition to the qualifications above, a business must also meet the general eligibility requirements for SBA loans, such as being in an approved industry (i.e. no gambling, lending, real estate investment, or speculation-based businesses allowed) and being a for-profit company based in the U.S.
How do I apply for an SBA Microloan?
To apply for an SBA Microloan, you must meet the general eligibility requirements for SBA loans, such as being in an approved industry (i.e. no gambling, lending, real estate investment, or speculation-based businesses allowed) and being a for-profit company based in the U.S. In addition, you must meet the specific requirements for SBA Microloans, which include:
- For existing businesses over 2 years old:
- Business must have positive cash flow
- Decent credit score (minimum of 575 for many lenders, though a score of 620-640 is preferred)
- At least two years of experience in the industry
- Sufficient collateral, or a co-signer with collateral and good credit
- For start-ups:
- Owners must have at have put at least 25% of their own funds in the business
- Good/decent credit
- At least two years of industry experience
- Sufficient collateral, or a co-signer with collateral and good credit and the ability to potentially repay the loan
- Strong business plan, including financial projections and market analysis
Once you have met the eligibility requirements, you can apply for an SBA Microloan by clicking the button below to get a quote.
Simply click the button below to apply for an SBA loan quote!What are the repayment terms for an SBA Microloan?
The repayment terms for an SBA Microloan vary, but cannot exceed 6 years. The interest rate can vary between 6.5% and 13%, but the average is 7.5%.
You also need to have a plan for what you intend to do if circumstances change and you’re unable to pay the loan as agreed. In a worst-case scenario, the SBA will only guarantee a portion of the loan, and you’re still responsible for paying the balance.
Learn more about understanding how the SBA guarantees loans here.