Reviewed by
The Microloan is the smallest loan that the U.S. Small Business Administration (SBA) offers. In fact, it is often called the most accessible.
These loans go up to $50,000, and the average Microloan is around $13,000. They fit early-stage companies and small cash-flow needs, not large capital purchases.
The SBA doesn't lend directly to you. Instead, it gives money to local nonprofit organizations that then lend it to you. Those lenders make the Microloan, set the interest rate, and choose your repayment terms. Because they're local community lenders, many will throw in extra support like coaching and training.
I've worked with a lot of small to midsize business owners looking for the right small business financing, and without question, the SBA Microloan Program is the one people know the least about. Below, I'll compare how this fits into the overall lending landscape, then explain how it works, what it costs, what you can and can't use it for, who's eligible, and how to apply.
| Feature | Microloan | 7(a) loan | Faster online term loan (non-SBA) |
|---|---|---|---|
| Maximum amount | Up to $50,000 (about $13,000 on average) | Up to $5 million | Based on your revenue, varies by lender |
| Who makes the loan | A local nonprofit organization | A bank or online SBA lender | An online or alternative lender |
| Typical rate | 8% to 13% (set by the nonprofit lender) | 3 to 6.5 points over prime, by loan size | Higher than SBA rates, varies a lot |
| Maximum term | Up to 7 years | Up to 10 years for working capital or equipment, up to 25 years for real estate | Generally shorter |
| Can't be used for | Paying off old debt or buying real estate | Few limits, covers real estate and refinancing | Depends on the lender |
| Best for | Smaller working-capital needs, and businesses banks turn down | Larger financing needs at a lower cost | Speed, when you can't wait for the SBA |
How Does the SBA Microloan Program Work?
The SBA doesn't lend you money directly. Instead, it gives money to a network of nonprofit organizations that then lend it to you. You apply to one of these nonprofits, not directly to the SBA.
The nonprofit sets your rate and repayment terms, within the SBA guidelines. Your rate and terms can vary a lot depending on which nonprofit you apply to. Two business owners can get very different offers from different nonprofits. Where you apply can affect both your rate and your terms.
There's an upside to this setup, though. These are mission-driven community lenders, so their credit standards are usually more relaxed than a traditional bank's. That's why a Microloan can work well for newer business owners and people a bank might otherwise turn down.
Business Training and Counseling That May Come With Your Microloan
While most Microloans are about receiving money, a lot of the nonprofits that make these loans also offer extra support. Think coaching, training, and planning help. That mix of money and hands-on business development is a hallmark of the Microloan program, and it's what sets it apart from a typical bank loan.
Before you close on your loan, though, expect to complete a few requirements. Some nonprofits require you to finish business training or counseling before you can close. Like I said, each lender sets its own requirements (the fine print lives in the SBA's Microloan Program rulebook), so ask your lender what you'll need to do before closing.
Don't treat the required training as just another hurdle. For a first-time or newly launched business owner, that training is a big part of what makes a Microloan a true entry point to capital, not just a small loan.
SBA Microloan Rates, Terms, and Uses
You can use a Microloan to pay for a wide range of business expenses, including working capital (your day-to-day business costs), inventory, supplies, equipment, machinery, and fixtures. Here's what you need to know before you apply, from what it covers to what it costs.
What you can use it for
You can use a Microloan to pay for a wide range of business expenses, including working capital (your day-to-day business costs), inventory, supplies, equipment, machinery, and fixtures. You could restock your shelves, buy a machine, or pay for an advertising campaign. Not-for-profit childcare centers can qualify for a Microloan, too. If you run a daycare, it may be on the table for you, too.
Collateral and personal guarantee
You'll usually need collateral (something you own that the lender can take if you don't pay) plus a personal guarantee (your personal promise to repay the loan). Both get weighed during the review, just at a smaller scale than other kinds of financing.
What you can't use it for
There are two exceptions, though. You can't use a Microloan to pay off existing debt (like paying down a line of credit), and you can't use it to buy real estate.
Credit requirements
The SBA sets no minimum credit score. The nonprofit lender sets its own guidelines, and they're generally more relaxed than a bank's. Your business plan and your overall finances count toward approval, too, right alongside your credit score.
Interest rates and repayment terms
The nonprofit lender sets your interest rate, and rates usually run 8% to 13%. The longest you get to pay one back is seven years. Some older info you might still see, like a six-year term or a 7% rate, isn't right for this program.
Time to financing
Funding timelines vary by lender. Some also ask you to finish business training or counseling before closing, which can add time. Treat any timeframe you see as typical, not guaranteed.
How To Get an SBA Microloan
Getting an SBA Microloan is a pretty straightforward process, but there's one step where most people get stuck. First, find a local nonprofit lender. That's the first place you go for your SBA Microloan. The SBA does keep a list of approved Microloan lenders, but you don't need to contact the SBA directly. Instead, look for a nonprofit lender in your area.
Step 1: Find a nonprofit lender near you
Find an SBA-approved nonprofit Microloan lender. There's no reason to contact the SBA. The SBA doesn't lend you the money; it just approves the lender to make the loans. And where you apply will affect your interest rate and repayment terms.
Step 2: Prepare your file
Gather your business plan, your personal and business financials, and a detailed plan for how you'll use the money. Be ready to offer collateral and sign a personal guarantee. Unlike banks, these lenders weigh your ability to repay and lean less on your credit score.
Step 3: Apply, train, and close
Finish any business training or counseling the lender asks for before closing. Funding timelines vary by lender, so treat any timeline you see as typical, not a guarantee.
If you'd rather see the steps in plain terms first, here's how our process works. And if you want to compare different financing options side by side, Clarify carries the highest trust rating in the industry.
Minimum Qualifications
$10,000 in monthly revenue
Your business must earn at least $10K per month in a business bank account.
500+ credit score
You can get approved with any credit score. But the better your credit rating, the better interest rates lenders offer. Your FICO score should be above 500.
Minimum six months in business
Your company should be operational for a minimum of six months. This shows business lenders that your company is sustainable and won't go out of business.
Have a business bank account
Your Clarify advisor will need three or four months of your most recent bank statements to verify income. This is just to see you're actually making $10K+ month in revenue.
Does an SBA Microloan Fit My Needs?
An SBA Microloan is a loan of up to $50,000 from a local nonprofit lender that pairs business support with the loan. It's a good match when you need a relatively small amount and don't meet a bank's requirements. If you need more than $50,000, want to refinance existing debt, or want to buy property, a 7(a) loan is the better option, since a Microloan can't do those.
Clarify connects businesses that have established revenue and operating history with lenders in our network who can help. We also make it easy to compare your financing options side by side, with one real lending advisor on your side instead of a call center.
Clarify has funded over $1 billion and served 50,000+ businesses, with an average funding time of 24 hours. When you're ready, you can apply today.
Frequently Asked Questions on SBA Microloans
Still have questions about SBA Microloans? Below you'll find straight answers to the most common questions.
What's So Different About Getting an SBA Microloan?
It's usually less difficult than getting a loan at a bank or through a 7(a), because the nonprofit lenders that make Microloans use their own, more lenient credit standards, and they focus on your business plan and character. Like with most loans, you'll need collateral and a personal guarantee. And how easy it is to get a Microloan, along with the terms you're offered, can vary by lender.
What Can I Use an SBA Microloan For?
You can use it for working capital, inventory, supplies, furniture and fixtures, machinery, and equipment. You can't use it to pay off other debt, and you can't use it to buy property.
What Credit Score Do I Need for an SBA Microloan?
The SBA doesn't have a minimum credit score requirement. Each nonprofit lender sets its own rules, and they tend to be looser than a bank's. A good business plan and a clean financial history count toward meeting the requirements, too.
How Long Will It Take To Get an SBA Microloan?
It depends on the lender. Some ask you to finish business training or counseling before you close, which can add time. Treat any timeline you see as typical, not a guarantee.
What's the Main Difference Between an SBA Microloan and a 7(a) Loan?
An SBA Microloan caps at $50,000, while a 7(a) loan can go up to $5 million. A Microloan comes from a nonprofit lender, and a 7(a) comes from a bank. You can't use a Microloan to finance real estate or refinance debt. A 7(a) is much more flexible, but it takes longer and needs more paperwork.
Can an SBA Microloan Help Me Pay Off Other Debt?
No. You can't use an SBA Microloan to refinance existing debt or to buy real estate. If you need to refinance, look at a 7(a) loan instead.
Is My Information Safe With Clarify?
Yes. Clarify follows SOC 2 security principles to protect your information. And when you check your options, it's a soft credit pull. Checking your options will not affect your credit score.
Michael Baynes
Co-founder, Clarify
Michael has over 15 years of experience in the business finance industry working directly with entrepreneurs. He co-founded Clarify Capital with the mission to cut through the noise in the finance industry by providing fast funding and clear answers. He holds dual degrees in Accounting and Finance from the Kelley School of Business at Indiana University. More about the Clarify team →
Related Posts
