SBA microloans: amounts, rates and requirements

What is an SBA microloan?

The SBA’s Microloan program gets small amounts of capital to businesses that are often too small or too new for a conventional bank loan. The SBA doesn’t make microloans itself. It lends money to nonprofit, community-based organizations, and those organizations lend it to small businesses in the areas they serve.

Definition

Microloan intermediary:

A nonprofit community lender approved by the SBA to make microloans. Intermediaries borrow from the SBA, make and service the loans themselves, and set their own credit standards, rates and requirements within the program’s rules.

Because each intermediary sets its own policies, two microlenders in the same city can have different requirements. Many also offer business training and one-on-one technical assistance, and some ask borrowers to take part before or after the loan closes. For a first-time owner, that support can be as valuable as the money.

Who are SBA microloans for?

Microloans fit owners who need a modest amount of money and may not yet qualify for a bank loan:

• Startups that need equipment, supplies or a first inventory order. See SBA loans for startups for larger options.
• Very small businesses, including sole proprietors, whose needs are smaller than a typical bank or SBA 7(a) loan.
• Owners who are still building credit and want a lender that offers coaching along with the loan.
• Some nonprofit child care centers, which certain intermediaries also lend to. See SBA loans for daycares.

Each intermediary decides which businesses it serves, and many focus on particular communities, industries or groups of owners. It’s worth asking early whether a lender works with businesses like yours.

What can you use an SBA microloan for?

Microloans can pay for most of what a small business needs to open or grow:

• Working capital, such as payroll, rent and marketing while sales ramp up
• Inventory and supplies
• Furniture and fixtures
• Machinery and equipment

There are two firm limits. A microloan can’t be used to buy real estate, and it can’t be used to pay off existing debt. If you need a building, look at commercial real estate loans. To replace expensive debt, see SBA debt refinancing.

How much can you borrow with an SBA microloan?

The maximum SBA microloan is $50,000, and the average loan is about $13,000. Loans are sized to a specific, documented need, so the average sits well below the cap.

How much you can borrow depends on:

• The intermediary’s own lending limits and policies
• Your ability to repay from business income, or from projections and other income if you’re just starting
• The collateral and personal guarantee you can offer

Some intermediaries start with a smaller loan and lend more once you’ve built a repayment record with them. If your plan clearly needs more than a microloan can provide, it’s better to look at a larger program from the start than to stack several small loans.

What are SBA microloan rates and terms?

Each intermediary sets its own interest rate. Microloan rates are typically 8%–13%. That’s often far less than the cost of carrying a balance on business credit cards or taking a merchant cash advance.

The maximum term is 7 years. The intermediary sets the actual term based on what the loan pays for and how quickly the business can repay, so a working capital loan may be shorter than an equipment loan.

There’s no SBA guaranty fee, because the SBA lends to the intermediary rather than guaranteeing your loan. Intermediaries may charge their own application or closing fees, so ask for every fee in writing.

What do microlenders look for?

Microlenders tend to look at the whole picture rather than a single number. Expect them to ask about:

1. Your plan for the money. A clear description of what the loan buys and how it helps the business earn more.
2. Your ability to repay. Current business income or, for a startup, realistic projections and any other household income.
3. Your credit history. The SBA doesn’t set a minimum credit score. Each intermediary sets its own standards, and many work with owners who are still building credit.
4. Collateral and a personal guarantee. Requirements vary by intermediary, but many ask for some collateral, such as equipment or inventory, and the owner’s personal guarantee.
5. Training or technical assistance. Some intermediaries ask you to complete a planning session or course before they lend.

Down payment requirements are also set by each intermediary, so ask about them at your first conversation.

Should you get a microloan or a 7(a) loan?

A microloan is usually the right tool when you need a small amount and value a lender that offers coaching along with the money. Once your needs grow, the SBA’s guaranteed programs open up larger amounts and longer terms:

Feature	SBA microloan	7(a) Small Loan	SBA Express
Maximum loan	$50,000	$350,000	$500,000
Who lends	Nonprofit intermediaries	Banks, credit unions and other SBA lenders	SBA lenders with Express authority
Longest term for working capital	7 years	10 years	10 years
Interest rate	Typically 8%–13%	Capped at Prime + 4.5% to 6.5%	Capped at Prime + 3% to 6.5%
Real estate and refinancing	Not allowed	Allowed within SBA rules	Allowed within SBA rules

If you need more than a microloan provides, compare 7(a) Small Loans, SBA Express and the full SBA 7(a) program, or see every program side by side.

How do you find the right lender for an SBA microloan?

Microloans come only from nonprofit intermediaries, and each one serves a defined area. Start with the intermediaries that lend where your business operates. The SBA publishes a list of participating intermediaries, and your local Small Business Development Center can often point you to one.

SBA Loan Connect’s lender rankings are built from the SBA’s public 7(a) and 504 loan records, which don’t include microloans. If your request is larger than a microloan, or you’re weighing a microloan against a 7(a) loan, our rankings show which lenders actually fund businesses like yours, and partner lenders are clearly labeled. See how we rank lenders.