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
Owners must have at have put at least 25% of their own funds in the business
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.