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Financing your small business with a microloan

Are you starting or expanding a business, and in need of a loan to help make it happen?

While there are some larger loan options available, many entrepreneurs — particularly freelance, online and home-based businesses — require only a few thousand dollars to get started. If this is the case for you, consider a microloan.

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by KMurray, SPA Community Moderator

What’s a microloan?

Microloans are loans in what would be considered “smaller” amounts than conventional business loans. SBA’s Microloan program, for instance, provides loans of 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.

What can I use a microloan for?

Microloans can be used for a number of things, including:

  • Working capital
  • Inventory or supplies
  • Furniture or fixtures
  • Machinery or equipment

You cannot use funds from an SBA microloan to pay any existing debts or to purchase real estate.

What are the terms and interest rates?

Microloan repayment terms vary according to several factors, including:

  • Loan amount
  • Planned use of funds
  • Requirements determined by the intermediary lender
  • Your needs as a small business borrower

The maximum repayment term allowed for an SBA microloan is six years.

Interest rates vary, depending on the intermediary lender and their costs from the US Treasury. In general, these rates are between 8 and 13 percent.

How can I get a microloan?

SBA provides funds to certain intermediary lenders, which are nonprofit community-based organizations with experience in lending, management and technical assistance. These intermediaries manage the Microloan program for eligible borrowers. So you don’t go directly to SBA for a microloan — you work with your local lender.

Each intermediary lender has its own lending and credit requirements. Typically, they require some type of collateral as well as the personal guarantee of the business owner. You may also have to fulfill training or planning requirements before a lender considers your loan application.

Learn more

For more information about microloans, and to find out if one might be right for you, contact your local SBA District Office or check out this list of participating microloan intermediary lenders.

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