What Are Microloans? How To Get It?


If you want loans in small amounts, you will need to get microloans for your need. These loans are offered as per the policies of the US SBA. Generally, these loans are of small amounts and can go up to a maximum of $50,000. Basically, these loans are targeted toward entrepreneurs with small businesses that cannot have the ability to qualify for traditional financing. These include people like startup founders and people that do not have experienced credit histories.

In this article, you will mainly know about microloans in general. Apart from that, you will also know about the ways in which SBA microloans work. Furthermore, you will understand the benefits of microloans. Finally, we will give you a brief idea of how to get microloans for your small business from a microloan lender.

What Are Microloans?

According to SBA.gov, The microloan program provides loans up to $50,000 to help small businesses and certain not-for-profit childcare centers start up and expand. The average microloan is about $13,000. SBA provides funds to specially designated intermediary lenders, which are nonprofit community-based organizations with experience in lending as well as management and technical assistance. These intermediaries administer the Microloan program for eligible borrowers.

Depending on the type of lender you are dealing with, a microloan can be of more than $50,000 too. However, in most cases, the microloan amounts are low, and the repayment terms are also short. This is because these loans are provided by keeping in mind the needs and demands of the owners of small businesses.

Microloans are extremely helpful for startups and businesses that are facing initial challenges in the market. Furthermore, these loans are helpful for businesses that are not getting good access to business credits. Microloans are helpful for small businesses in another way as well. Most small businesses do not need big loan amounts.

Microloans- How Do They Work?

Microloans are available as business microloans and microloans for women, minorities, and others. If you get a microloan, you can use it for any purpose of your business, from rent, operating expenses, equipment, and other needs. SBA claims that Microloans can be used for a variety of purposes that help small businesses expand. Use them when you need less than $50,000 to rebuild, re-open, repair, enhance, or improve your small business.”

However, you will also need to be eligible for microloans if you want to get it from a reputed lender or a bank. In terms of eligibility, SBA says,Each intermediary lender has its own lending and credit requirements. Generally, intermediaries require some type of collateral as well as the personal guarantee of the business owner.” You can basically use the loan for working capital, inventories, business supplies, fixtures, furniture, equipment, and machinery.

In terms of working, you will need to know that microloans work in the same way as traditional lending works. However, if you take a microloan from SBA, you will not be able to purchase any real estate, and you cannot pay your existing debts.

Basically, you will get a sum, which you will have to pay back along with the rate of the interest, along with regular payment over a particular period of time. The time of payback ranges from three to six years, depending on the size of the business and the type of owner. The major difference here with a traditional loan is that the loan amount is just less with microloans.

The following are the organizations that provide microloans in the USA – The US Small Business Administration, the US Department of Agriculture, online lenders, alternative lenders, mission-driven organizations, and peer-to-peer funders.

Microloans are basically meant for funding low-income communities, women, minority entrepreneurs, women, and business owners who are not able to access capital readily. Apart from that, loans from USDA are meant for the needs of agriculture operators in rural areas. There are other sources of microloans as well.

Major Benefits That Microloan Offers

Major Benefits That Microloan

Although there are advantages and disadvantages associated with all types of loans, in this article, we will only talk about the advantages of microloans. Hence, the following are the major advantages of microloans that you will benefit from:

  • The requirements with microloans are not strict as that of traditional business loans. Here, you will not need to provide a high credit score and a sufficient business history. The lenders know that the people looking for microloans are small business owners or completely new ones.
  • The application process for microloans is also fast and flexible. You will not have to wait for months to get a microloan for your business. Hence, you can stay assured that your financial goals and business goals will not hit a hurdle.
  • The best part about microloans is that there is little to no requirement for collateral. This is mainly because the amount is not very high with microloans. Such a factor is also great for borrowers of micro loans that do not have a significant amount of assets that they can offer as a guarantee if they become defaulters in the loan. In such cases, SBA helps these lenders as well.
  • You can use small business microloans for a variety of requirements for your business.

How To Get Microloans For Your Small Business?

In this section, you will get an idea of how to apply for SBA microloans in a bank or a financial institution. Once you are looking for business microloans, you will need to apply to a nearby lender or financial institution. Here is what SBA has to guide you for microloans – Microloans are available through certain nonprofit, community-based organizations that are experienced in lending and business management assistance. Individual requirements will vary. To apply for a microloan, work with an SBA-approved intermediary in your area. SBA-approved lenders make all credit decisions and set all terms for your microloan.”

Summing Up

Hope you have got a good idea of microloans in general. If you want to know more about microloans and your eligibility, we recommend you to go to the official website of SBA.gov. However, getting a microloan is easy, provided you are a small business owner, and you clear the eligibility of getting microloans.

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