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Home Business Loans SBA Microloans: Rates, Requirements, and How to Apply
You might consider an SBA microloan if you’re trying to start or expand a small busines.
But how exactly does the program work?
Here, we’ll explain how SBA microloans work, highlighting requirements, current interest rates, microloan lenders, and how you can apply today.
The SBA microloan program provides small loans up to $50,000, designed for small businesses and eligible nonprofits.
According to the SBA, the average microloan is around $13,000.
These loans can be used for working capital needs and to purchase equipment and inventory.
They can not be used to pay down existing debt or buy real estate.
When you receive a microloan, the funds won’t come directly from the SBA. Instead, the SBA provides the funds to intermediary lenders, which are usually nonprofit, community-based organizations.
SBA microloans are available to all for-profit small businesses and certain nonprofit child care centers.
Unlike other types of loans, you may qualify even with a limited credit history.
That’s because microloans are designed for individuals who might struggle to qualify for a traditional loan—including women– and minority-owned businesses and borrowers from low-income communities.
Of course, each lender will have its own eligibility requirements, but most will ask for some or all of the following:
The interest rates will vary depending on your lender, but they typically range between 8% and 13%. And repayments terms are available for up to six years.
Since the SBA doesn’t distribute the funds, the first step is to find an SBA-approved intermediary lender in your area.
The SBA has hundreds of lending partners located across the country, and provides a comprehensive list of microloan lenders to help you find a match.
Most lenders will require you to either speak to a lending specialist over the phone or apply in person.
The lender you work with will inform you about any necessary paperwork and documentation to apply. In addition, some lenders may require that you complete a workshop or training program as part of the application process.
As part of your paperwork, you’ll need to provide a range of information, including:
Once you’ve submitted all the required paperwork, your application is complete, and your lender will review and process the loan.
If you’re not sure if an SBA microloan is the right fit for your business, here are some alternatives to consider:
SBA microloans can help startups and small businesses access the capital they need. These loans are a good option for traditionally underserved borrowers, like women and minorities. If you’re interested in exploring your loan options, you can use Lendio to quickly compare loan offers from multiple lenders.
Applying is free and won’t impact your credit.
For the past five years, she's dedicated more than 10,000 hours of research and writing to more than 2,000 articles about personal finance topics, including building credit, mortgages, and personal and student loans.
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