An Explanation of SBA Microloans
For business owners who cannot obtain loans from banks or other lenders, they should look into microloans from the Small Business Administration. The SBA has a program available that allows entrepreneurs to acquire small loans for their businesses. While the maximum amount allowed for these loans is $50,000, the average one amounts to around $13,000. For companies that are trying to get off the ground, these loans can be an excellent way to secure financing.
The funding for these loans technically comes from intermediary lenders. These are community-based organizations that are also non-profits. They generally have experience with lending and providing technical assistance for entrepreneurs. Since there are different intermediaries, they each have their own requirements. Therefore, if there are multiple intermediaries in your area, then it could be in your best interest to meet with several to see who offers the best terms.
The lender you go to can inform you more about its specific application process. However, one common aspect of applying for microloans is going through business training courses. These programs are designed to help employers figure out how to expand or launch a business. They can be quite helpful, and if you are in need of a microloan, then you are benefitting in multiple ways.
Once a microloan is acquired, it can only be used on specific expenses. For example, it can be used to acquire new machinery or furniture. It can also be used to purchase additional inventory or to have more working capital. However, these loans cannot be used to purchase real estate. In the event the company has debts to pay, the loan cannot be used to pay off that debt.
As far as repayment, the business owner will be given six years to pay back the loan in full. Various terms can be associated with the repayment, such as what the planned use of the funds is and what the total loan amount was. Different intermediaries will have different interest rates. Generally speaking, most business owners can expect an interest rate between eight and 13 percent.
In order to find an intermediary to work with, you will need to conduct research in your area. The simplest course of action to take is to reach out to your local Small Business Administration. Before applying for microloans, you will want to make sure your business has a comprehensive plan in place. It is also a good idea to check your company’s credit rating before applying for a loan.