If you are looking for a little cash to jump-start or expand your business – and rich Auntie Lorie has already closed her doors on you – then you might want to look into a microloan program.
The Small Business Administration (SBA) introduced its Microloan Program in 1992 to provide for startup or growing small businesses. Under the program, qualified borrowers may be approved for loans for use as working capital, inventory purchase, procurement of supply, fixtures, machinery and equipment. The loans are distributed through non-profit community-based lenders or intermediaries, and not at SBA directly.
What’s the catch?
First, the loan amounts are small. Microloan amounts may range from $1,000 to $35,000 (sometimes less, depending on the maximum amount set by the loan intermediary) – just the right amount for less capital-intensive home businesses. The average loan amount is $10,500. Businesses that require extensive capitalization like building or land procurement may find the amounts offered by the Microloan Program too small and limiting. The maximum lending term for a microloan is 6 years.
Second, there are eligibility requirements. If you think Microloan Programs are less strict than a bank, think again. While each intermediary sets their own criteria for loan eligibility, the general requirements include some type of collateral, and the personal guarantee of the business owner. The collateral may include equipment, contracts, inventory or other property.