SBA MICROLOAN
SBA Consultant
SBA Microloan
The microloan loan program is the SBA's primary program for providing small businesses with working capital. The terms and conditions, like the guaranty percentage and loan amount, may vary by the type of loan. The Small Business Administration works though intermediary lenders to provide small businesses microloans up to $50,000 for the following purposes:
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Working capital
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Inventory
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Supplies
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Furniture
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Fixtures
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Machinery
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Equipment
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SBA MICROLOAN - Most Popular Working Capital Loan
Why is SBA's Microloan program so popular? Through the SBA Microloan Program, the Small Business Administration (SBA) loans money to intermediary nonprofit lenders. These lenders then provide business loans of up to $50,000 to startups and small businesses, many of them run by women, minorities, or veterans. The average microloan is about $13,000.
SBA MICROLOAN - What Is It?
What are Microloans, and can they be used for startups ? Microloans are very small, short-term loans with a low-interest rate, extended to self-employed individuals, new startups with very low capital requirements, or small businesses with only a few employees. They are business loans of up to $50,000 that can be used to start or grow a business
SBA MICROLOAN - Terms
What kind of loan terms do I get with a Microloan? Repayment Terms, Interest Rates, and Fees
Loan repayment terms vary according to several factors:
Loan amount
Planned use of funds
Requirements determined by the intermediary lender
Needs of the small business borrower
Terms:
The maximum repayment term allowed for an SBA microloan is six years.
Interest rates vary, depending on the intermediary lender and costs to the intermediary from the U.S. Treasury.
Generally, these rates will be between 8 and 13 percent.
You’ll need to prove you’ve got a sound business purpose for the loan you’re requesting, and that your intended funds usage is approved by the SBA.
You’ll need to prove you’re not delinquent on any existing debts to the U.S. government (taxes, student loans).
SBA MICROLOAN - Other Beneficial Business Qualities
What other beneficial business qualities does the SBA look for to be approved for an SBA Microloan? As per the Small Business Administration guidelines, in addition to the eligibility requirements listed above, there are a few additional qualities which can increase your likelihood of SBA Microloan approval
A decent credit score - preferably above 650.
A history free from recent bankruptcies, foreclosures, or tax liens.
Having been in business for at least two years helps, although startups can also qualify.
The ability to provide some collateral is also a plus.
The ability to make a down payment of 10% if your intended use of funds is to purchase supplies, inventory or equipment.
Sufficient cash flow (shown in projected financial statements) to meet your debt obligations.
Sufficient working capital (once you subtract liabilities from assets).
“Good character” according to the SBA (partially decided based on your track record of managing your resources and day-to-day business affairs).
If the business applying for the SBA Microloan is unable to check all of the above, the business is not automatically disqualified from the program.
Allowable Uses of Funds
Working Capital
Purchase Equipment
In order to get approved for an SBA Microloan, you’ll need to prove that your plans for the funds are appropriate. While the specific allowable uses depend on the amount you want to borrow, you can generally use SBA Microloan funds for operational expenses, hiring employees, purchasing new inventory or equipment, supporting marketing costs, or other working capital. No real estate purchases are allowed.
Collateral Requirements
Case by Case Basis
Lender May Require It
While the SBA guarantees a large percentage of a microloan, your lender is still on the line for the remaining percent. The collateral you provide goes a long way in persuading the lender to loan you money; offering collateral instills confidence in recovery should you default. showing the SBA that you’re fully invested in the success of your business by putting up collateral definitely increases your chances of approval and success.
Guidelines For Startups
I am Starting a New Company, Do I Qualify?
Maybe, but the process will certainly be a little more challenging! Startups are generally seen as risky investments; 50% of small businesses fail within the first five years. SBA microloans minimize the risk to lenders, so lenders working with the SBA are more likely to give out riskier startup loans.
By offering collateral you can convince your lender that your business has potential and mitigate potential risks.
SBA Microloan Program
The SBA Microloan Program allows businesses to borrow up to $50,000, Although lenders are not required to take collateral for loans up to $25,000, higher amounts mean that the lender will require sufficient collateral to secure their investment.
Microloan Program Limits
This program has a maximum loan amount of $50,000. However, the average loan amount is much less than that, as low as $13,000 per loan. The credit decision as well as terms of the loan are generally made by the lender.
Planning Requirements
Although the SBA doe not require an official business plan under the Microloan program, businesses that provide a sharp coherent business plan not only tend to get funded more often, but also tend to get funded faster, and for higher loan amounts.
Next Step for Microloan Help
If you or a business you own are interested in finding out whether you qualify for a Microloan, we very much want to hear from you. SBA Consultant's niche SBA services can provide you with as little or as much guidance as you need to get the loan closed. We can even help you prepare a full Business Plan and help you fill out the loan application.