Small Business Microloans

Even a tiny loan can be big for a fledgling business

By Holly Ocasio Rizzo, Writer and editor, Holly Ocasio Rizzo

Need a loan from $500 to $35,000? A microloan in that range can give your start-up, new or growing small business a boost when traditional loans aren't available to you. Microloans are made through nonprofit, community-based lenders. Many of these lenders receive loan funding from the Small Business Administration. A small-business microloan can benefit your business in many ways:

Lenders may require a business plan as part of the application — something you may not have created if you initially funded your business with savings, credit cards or personal loans. This gets you in shape to grow your business.
Microloans can be used for a variety of purposes: working capital, inventory, equipment, fixtures, furniture and nearly anything else to start a business with few or no employees.
SBA-funded microloans and others include a stipulation that the lender provide business mentoring to the borrower — an added value in putting your microloan to work.

Apply to an SBA-approved microlender

The SBA calls its microlenders "intermediaries" because they handle applications and approvals locally. Each lender has its own credit requirements, such as requiring collateral.
Try: The U.S. Small business Administration's Microloan Program provides very small loans to start-up, newly established, or growing small business concerns. Download a PDF file listing lenders state by state.

Woman? Minority?

Some microlenders who don't use SBA funds make a specialty of loans to women and minorities.
Try: ACCION International, based in Boston, provides microloans to men and women nationwide in impoverished areas. Count Me In calls itself the first online microlender making loans available to women across the United States.

Before applying, get your business plan in shape

As flexible as microlenders are compared with traditional lenders, they still want evidence that you've thought through your market, product, competition, operations and goals.
Try: The nonprofit Service Corps of Retired Executives, which exists to offer free advice to new entrepreneurs, includes counselors and experts in business plans. Find a SCORE counselor. The SBA offers online guidance in writing business plans.

Be an information sponge

Soak in all the knowledge you need by asking questions for all your microloan issues.
Try: Contact your nearest SBA office for one-on-one information.

Interest rates on microloans tend to be higher than for standard business loans.
The maximum loan term is six years.
The lender may ask for a personal financial statement, including a credit report, in lieu of a business plan.
The SBA requires each intermediary to provide business training to borrowers, and borrowers may need to complete training before applying for a loan.