An SBA microloan is a small loan, up to $50,000 according to the SBA, made through nonprofit community lenders instead of directly by the SBA.
What an SBA microloan is
The SBA’s microloan program is built for very small businesses and startups that need modest amounts of money. The SBA does not make the loans itself. It funds nonprofit, community-based intermediary lenders, and those lenders make the credit decisions and set the terms.
I am not a lender or an advisor, and this is general information. Limits and rules change, so check the SBA’s current page and talk to a lender before you plan around any number.
Key facts about an SBA microloan
According to the SBA’s own page, here is the basic picture:
- Loans go up to $50,000, with the average closer to $13,000
- They are made by nonprofit intermediary lenders
- Funds can go toward working capital, inventory, supplies, furniture, fixtures, machinery and equipment
- Funds cannot be used to pay off existing debts or to buy real estate
Who an SBA microloan may fit
A microloan can make sense if you need a smaller amount than a bank is likely to offer, are just getting started or run a home-based or very small business. If you need a larger amount, for example to buy a business, a different program such as the SBA 7(a) may fit better. Our guide on how to use an SBA loan to buy a business explains that route.
How to apply for an SBA microloan
Because each intermediary lender sets its own process, start by finding one near you. The SBA site can point you to lenders. Then gather the basics:
- A short business plan or description of what the money will do
- Your personal financial information and credit history
- A simple cash flow forecast
- Details on what you will buy and what it costs
- Any records of sales if the business has started
Questions to ask before you borrow
Ask each lender about the interest rate, fees, repayment term, whether collateral or a personal guarantee is required and whether they offer help with planning or training. Compare at least two lenders. The Consumer Financial Protection Bureau has consumer information on borrowing, and America’s SBDC network offers free advising that can help you prepare.
Mistakes to avoid with an SBA microloan
These come up often with small loans:
- Borrowing more than you can repay from real sales
- Applying without a clear list of what the money buys
- Ignoring fees and focusing only on the rate
- Mixing loan money with personal spending
- Using a loan to cover a problem that a better price or plan would solve
Other funding routes to compare
A microloan is only one option. You might use savings, a credit union loan, a partner or a larger SBA program, depending on how much you need and what you plan to buy. Compare the total cost of each, not only the monthly payment, and think about what happens if sales are slower than planned. A good sba microloan decision starts with the smallest amount that gets the job done.
Next steps
If you are comparing funding options, read our guide on how to finance a business opportunity, and set up a separate bank account before the money arrives. Our guide on how to open a business bank account explains how. The SBA’s microloan page has the current details.
Related reading on the SBA microloan
- How to Finance a Business Opportunity: SBA Loans & More
- How to Open a Business Bank Account
- How to Get an EIN for Your Business
- LLC vs. Sole Proprietorship: Setting Up Your Business Opportunity Correctly
- SBA Loan to Buy a Business: What to Know Before You Apply
- SBA microloan program
- Consumer Financial Protection Bureau
- America’s SBDC small business advising
