Microloans for Your Small Business
What are they?
Microloans are small loans that are usually made by Community Development Financial Institutions (CDFI), which are non-profit lenders. Their main purpose is to help unserved entrepreneurs get access to capital. A lot of microloan programs focus on certain groups of entrepreneurs such as women, minorities, immigrants, and veterans. Although there is no legal limit on loan amount, the SBA program has a microloan limit of $50,000.
SBA Microloans do not directly come from the SBA. The SBA provides loan funds to specially designated intermediary lenders. These lenders, for the most part, are non- profit community based organizations.
Microlenders don't only provide financial assistance but also technical expertise in terms of education and mentorship. Their aim is to help entrepreneurs build good credit so they can later opt for traditional loans. These lenders also support applicants of various credit standing. Such loans can be used to pay any business-related expenses including equipment, rent, payroll, working capital, and inventory. Each lender has a unique application process and different application requirements.
Who is eligible?
Each intermediary lender has its own application process and lending requirements. Frequently, these intermediary lenders require some form of collateral and personal guarantee of the business owner.
What do you need to apply?
Microloans can be applied to through certain non-profit and community organizations that have experience in business management and lending assistance. Individual requirements will vary.
You will want to have your completed business plan in hand when applying for any kind of financing. If you don’t have a complete business plan, or have questions about getting loan ready, contact WISE and consider getting a business counselor from WISE.
To apply for a microloan, you can work with an SBA- approved lenders make all credit decisions and set all terms for microloan. A list of these lenders can be found at the end of this blog.
For the most part, applicants must meet the eligibility requirements of SBA 7(a) loans to be considered eligible borrowers for an SBA Microloan. The business applying must AT LEAST have the following:
- Be a start-up, newly established, or growing for profit small business concern or, a non-profit child care center.
- Qualify as a small business under SBA size standards.
- Cannot be in an ineligible industry (similar to 7(a) requirements).
- Must be a U.S. citizen, lawful permanent resident or non-citizens lawfully in the U.S. with a work permit.
If the business is applying for a loan of more than $20,000, it must meet a “credit elsewhere” test that essentially demonstrates the applicant can’t get similar financing from non-federal sources. Your lender will prepare you for this documentation.
How do you pay back a microloan?
Loan repayment terms vary depending on various factors.
- Repayment terms
- Amount, planned use, lender requirements,principal amount, interest rate, loan term and any prepayment penalties
- Maximum repayment term allowed for an SBA microloan is six years
- Interest rates
- Interest rates vary depending on the intermediary lender
- Generally, between 8 and 13 %
Interested in hearing more from a CDFI and learning more? Check out the WISE Power Hour on Microloans with Sherri Falck of Pursuit lending HERE!
NY lenders who provide microloans:
- Pursuit Lending
- Grameen American, Inc.
- Renaissance Economic Development Corporation
- Accion East, Inc.
- Business Center for New Americans, Accompany Capital
- Community Capital New York, Inc.
- BOC Capital Corporation
- Adirondack Economic Development Corporation
- Pathstone Enterprise Center
- Westminster Economic Development Initiative
- REDEC Relending Corp.
- Columbia Economic Development Corp.