Requirements for a SBA MicroLoan

An SBA microloan makes relatively small amounts of funds available to small non-profit based businesses that might not otherwise qualify for business borrowing. Microloans have fixed interest rates and come with technical assistance. But as with all borrowing, there are requirements to qualify. The following information will help you understand SBA microloan terms and requirements for both existing and start-up businesses.

Loan Amount and Terms

The SBA Microloan Program has specific loan limits. Loans cannot be for more than $35,000. The average loan is about $13,000. Loans must be repaid within six years, but a three to five year pay term is typical.

The Small Business Administration does not actually make microloans. The SBA authorizes non-profit organizations in communities across the country to make these loans, particularly targeting groups historically shut out of business borrowing.

Operating Business Requirements

Typically, a community organization making microloans to businesses that have been in operation for a year will require the business to have:

  • positive cash flow sufficient to pay the loan;
  • an acceptable credit report or an explanation of negative information and how it can be accounted for;
  • collateral, which can vary widely from 20 percent to 100 percent of the loan value, or a co-signer if there is no collateral;
  • and demonstrated experience of the borrower in the specific industry of your business, usually at least two years of experience.

New Business Requirements

A microloan is among the few types of borrowing that is open for very small start-up businesses, but there are still requirements. Typically, a microlending organization will want a start-up business owner to have:

  • at least two years experience in the industry in which the business is being started;
  • capital in the business;
  • business training and technical training for one year
  • good credit history or an acceptable explanation of negative marks;
  • collateral or a co-signer to cover the amount of the loan;
  • a realistic business plan with projections acceptable to the lender;
  • and a reasonable expectation that you can continue to meet living expenses while the business is in the start-up phase and that you are not depending on the microloan for that.

In both of these instances, the operating small business and the start-up small business, these are general examples. Specific requirements will vary from lender to lender.

Technical Assistance

A condition of qualification to be a microlender is that your organization must offer technical assistance to borrowers after the loan is made. That means as a borrower, a requirement of a receiving a microloan is your willingness to accept the technical assistance and training from the lending organization.

You won’t find “patience” listed on microloan applications. But the SBA Microloan Program is not a quick fix to your cash issues. Approval can take from four to six months. The payoff for you is that you are getting fixed-interest financing that typically would not be available. So plan ahead, and be patient.