SBA microloans are small loans of up to $50,000 that are funded by the U.S. Small Business Administration. These loans are often directed toward underserved communities, such as women and veteran business owners.

An advantage these loans have over other types of SBA loans is that they often have less-strict eligibility requirements. As a result, you may get approved for an SBA microloan even with minimal or no credit history. However, a downside is that approval times generally range from one to three months.

What is an SBA microloan?

The SBA microloan program provides small loans to startups and new businesses. Qualified small business owners can borrow up to $50,000. The average microloan is $13,000, and interest rates typically range from 8 percent to 13 percent.

Although the SBA funds these loans, it doesn’t distribute them. Instead, the SBA makes the funds available through intermediary nonprofit community-based lenders.

SBA microloans are often secured, requiring you to pledge some form of collateral, like unpaid invoices or inventory. In addition, most lenders require a personal guarantee, which means they can hold you personally liable if you default on the loan.

You can use an SBA microloan to pay for many expenses, such as working capital, supplies and equipment. But the SBA doesn’t allow you to use funds to pay for real estate or to pay off existing debt.

SBA microloan key features

Repayment terms Up to six years
Interest rates Varies by microlender, but typically from 8%-13%
Loan amount Up to $50,000

SBA microloan vs. SBA 7(a) loan

SBA microloans may come in handy for small business expenses, but if you need to borrow more than $50,000, an SBA 7(a) loan is a better option. With this loan program, you can borrow up to $5 million. Plus, unlike with an SBA microloan, you can use an SBA 7(a) loan to buy real estate for your business.

While an SBA microloan works best for someone looking to start up or new businesses, an SBA 7 (a) loan works best for a more established small business with a history of earning profits.

SBA microloan  SBA 7(a) loan
Administered by Nonprofit community based lenders Banks and online lenders
Repayment terms Up to six years Up to 10 years for working capital and equipment loans; up to 25 years for real estate loans
Interest rates Varies by lender; typically 8%-13% Varies by lender
Loan amount Up to $50,000 Up to $5 million

Who qualifies for SBA microloans?

SBA loans are designed to help startups, newly founded businesses and certain not-for-profit childcare centers. Also, some intermediaries focus on members of underserved communities, such as minority-owned and women-owned business owners and people who live in low- to moderate-income areas. 

Beyond that, each lender has its own business loan requirements. For example, while most lenders require will require you to pledge collateral or meet a certain credit score threshold, others won’t. 

How to get an SBA microloan

While the SBA loan application process varies by lender, below are some general steps you take to apply for an SBA microloan:

1. Find an SBA-approved microlender

The first step is finding an SBA-approved lender in your area. You can find one by reviewing this list of approved lenders.

2. Gather your documents

Although application requirements vary, you’ll most likely have to provide some or all of the following documents: 

  • Profit and loss statements
  • Personal and business tax returns and 
  • Payroll records
  • A list of references
  • Monthly budget for your household and business
  • Business plan
  • Business bank statements
  • Detailed outline of how funds will be used
  • Copy of business license

3. Submit a loan application

Once you’ve chosen an approved lender in your area that best matches your business needs, submit a loan application. 

4. Wait for approval

After you’ve submitted your loan application, you’ll have to wait to see if you’re approved. Though approval times vary, it often takes one to three months for a microlender to notify you of its decision. 

5. Receive funds

If approved, you might have to wait for the funds to be deposited into your bank account. Repay the loan as promised to avoid late fees and possible damage to your personal or business credit.

The bottom line

An SBA microloan can provide you with the capital you need to start or expand your business. But a potential downside is that you can only borrow up to $50,000 If you need to borrow a larger amount, consider applying for a conventional business loan or an SBA 7(a) loan instead.

FAQs about SBA microloans

  • Minimum credit score requirements vary by lender. Some microlenders don’t have a minimum credit score requirement, but will still review your payment history and credit report to determine whether you qualify. If you have a bankruptcy listed on your credit report, you might have trouble qualifying.

  • SBA loan approval times vary by lender. But if you’re approved, you can generally expect to receive your funds within 30 to 90 days.