An SBA Microloan is a federally funded program that supplies information, support, and loans to businesses. The SBA offers several types of loans, today we will be focusing on an SBA microloan.
The SBA loans money to community-based non-profit and non-traditional lenders. The loans go up to $35,000 for small businesses. While the average microloan is about $13,000 remember that this is just one way for you to receive business financing.
Because there are different microlenders, interest rates, and maximum loan amounts will vary. One rule of thumb, though, is that the maximum loan term is six years.
How Qualify for SBA Microloans
When you’re preparing to present your business to a lender, you must be organized and honest to increase your chances of qualifying. It is crucial that you have all the necessary documents and knowing the answers to the questions you will be asked. Having a business plan is also crucial.
In addition, profit-expense records are generally required so that the lender can ensure that you’re not overspending.
Your application needs to show that you are qualified and able to run the business as well as that you can handle the loan’s repayment terms.
SBA microlenders are mission-oriented, committed to the economic prosperity of their neighborhood and city, and required to provide business-based training. This gives you a huge advantage because you’re more likely to receive an SBA microloan just by being a local small business.
What You Need to Apply for an SBA Microloan
You need to know your business and personal credit score. If your credit is low, you might have a hard time qualifying.
Personal credit will come up with banks, micro-lenders, and P2P lenders. If you own 20 percent or more of the company, great personal credit can help secure a loan. At least three years of personal income tax reports with you.
A business plan is crucial to your success in the application process. It should state what your business is, what you need the loan for, and what will make you successful. You’ll also need to bring copies of financial reports going back at least three years.
Lastly, most lenders require a personal guarantee from a business owner. By requiring this, they can further ensure that you’re serious about securing a loan and confident in your ability to responsibly pay it back on-time.
How Can I Spend My SBA Microloan?
Make sure that you can make your payments on time to your lender after you receive the SBA microloan. There are many ways to use the cash influx from your SBA microloan. For instance, it can be used for working capital, inventory, furniture, supplies, machinery, and equipment. It is important to note that you can’t use the microloan to pay off existing debt or purchase real estate, as there are other SBA products to handle these situations.
The Bottom Line
An SBA microloan is a great option for your small business if you are a small startup that is community oriented. If you want to purchase real estate or refinance debt, you should consider the other SBA products such as the 7(a) or CDC/504 programs.