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The U.S. Small Business Administration Microloan Program

If your business needs a small short-term loan, then the U.S. Small Business Administration’s Microloan Program could be a great fit.

During normal operations, many successful business owners find they need a small infusion of cash to keep afloat during temporary slow periods, to cover an unexpected expense or to seize an opportunity for expansion. In these cases, the amount required is much smaller than the loan they used to start their business, which is why the SBA created its Microloan Program.

Mircoloans fit into an ideal “Goldilocks zone” for many business needs, because they offer more funds than a typical credit card but also are smaller and more manageable than a startup loan, such as those obtained through the SBA’s 7(a) Loan Program. They may also be easier to obtain for very small businesses that do not have a lot of income, equity or collateral established at the time of the loan application.

“Although they’re not the only source of capital for these smaller small businesses, the SBA has recognized the need to get more money, via small loan amounts, into the hands of these businesses,” states Ty Kiisel, a contributor to Forbes in a September 2015 article. “And, although the average size of an SBA loan within the 7(a) program is closer to $400,000 than $40,000, in recent years the SBA has been encouraging [its] member lenders to make these smaller loans.”

Microloans are intended to provide a small financial boost to businesses that may need to augment working capital. This can be essential for businesses that need to purchase inventory prior to their busy and more profitable season.

According to the SBA, the funds are frequently used for purchasing supplies, furniture, new equipment, machinery or fixtures.

The SBA does not provide these loans directly. It is responsible for structuring the program and providing funds to the designated intermediary lenders that work directly with the small businesses. All these designated intermediary lenders are nonprofit organizations with a history of lending and experience providing technical assistance to businesses, so they are fully qualified to take charge of the proceedings and make credit decisions on the local level.

Applications are made to these local intermediaries, and they each have their own lending and credit requirements. Often, to be approved, the business owner must provide a personal guarantee and some type of collateral. Because the SBA wants to ensure that small businesses have all the tools they need to succeed, there may be requirements for approval beyond meeting the financial and other criteria set by the lender.

“If you apply for SBA microloan financing, you may be required to fulfill training or planning requirements before your loan application is considered,” states the SBA. “This business training is designed to help you launch or expand your business.”

The maximum loan amount is $50,000, but the average loan size is approximately $13,000 according to the SBA. It is important to note that the proceeds from an SBA microloan can’t be used to pay off existing debt or to purchase real estate. In either of these cases, you should speak directly with your local financial institution to find your best option.

“In addition to making capital available, many micro-lenders offer or recommend other services to help these business owners make the most out of their borrowed capital to build strong and healthy businesses,” states Kiisel. “[G]roups like SBDCs (Small Business Development Centers) and SCORE are great resources every small business owner can (and should) access to help their businesses.”

Get Started Today

Cardinal Bank is a preferred Small Business Administration (SBA) Lender. Call us at 703.584.3400, option 2, or 800.473.3247,or visit a banking office near you to learn more and apply.