Our goal at Benchmark Commercial Lending is to provide access to commercial loans and leasing products for small businesses.
Small businesses with very high overhead or startup costs may seek SBA loans for hundreds of thousands or even millions of dollars. But other business owners need a much smaller amount to take the next major step in their business.
Banks are already reticent to loan money to small businesses in the first place, so many lending institutions won’t even entertain a business loan application for $50,000 or less. It is for exactly this reason that the SBA created the microloan program, which works with small, nonprofit intermediary lenders in local communities to fund loans under $50,000.
Unlike the other types of SBA loans, the Microloan program stands out as the only one in which the funds for individual loans come directly from the SBA. Nonprofit intermediaries borrow up to $5 million at a time directly from the Small Business Administration, and then dole out that capital to individual borrowers according to their own qualification standards.
Although more limited than the other SBA loan programs, SBA microloans can be used for a relatively wide variety of purposes. For example, you can use these loans to purchase materials, pay staff, or pay for advertising or marketing. However, you cannot use an SBA Microloan to refinance debt or to purchase real estate.
An SBA microloan can be a great option for any small business owner who would see a positive impact on their business from capital less than $50,000.
The exact qualification terms and minimum requirements vary among intermediary lenders, so you should check with your local intermediary to determine their exact application process and standards. However, you can generally expect that you will need a personal credit score of at least 600, and you will need to put up collateral on the loan and sign a personal guarantee.
As with any type of SBA loan, expect that you’ll need to present a well formulated business plan as part of your application. This is important for all SBA loan programs, but especially for newer businesses, which tend to apply for the Microloan program.
While borrowers can obtain up to $50,000 through this program, the average Microloan that the SBA funded in fiscal year 2017 was just $13,884. SBA Microloans have shorter terms compared to the other types of SBA loans. They carry terms of up to six years with interest rates between 6.5% and 13%. The average Microloan interest rate in the SBA’s 2017 fiscal year was 7.5%.
The SBA works through local intermediaries to make Microloans, so you’ll want to first find a local intermediary in your area and contact them to learn more about the application process and requirements.
Despite the smaller size of SBA microloans, you can expect the application process to be equally thorough. Getting loan approval and receiving the funds in your bank account can take several weeks. We suggest submitting your SBA microloan application as soon as possible, long before you have an immediate need.