Small Business Microloans Demystified

In the last post, we went over Small Business Administration loans–what they are, why they can be difficult to obtain, and how the complex process deters many business owners. While the SBA’s primary focus is on this loan program, they also provide support for intermediary lenders for something called the Microloan Program. This small business microloan program provides funds for eligible lenders, and these loans are administered entirely by those lenders.

What is a microloan? Microloans for small businesses are typically given in fairly low amounts (no larger than $50,000, with the majority being closer to around $12,000). Unlike our programs at Loanability, microloans generally require you to pledge specific collateral. They may also have more unusual requirements–many will ask applicants to complete some business training and planning requirements to being approved for a microloan. Depending on your lender, it’s also possible that your personal income will help determine whether you qualify for a microloan or not.

Micro business loans are administered by a variety of lenders, but generally speaking the lenders are non-profit associations who work to support economic growth in their region. While this is an admirable goal, it does mean that applicants may be asked to use their funds in ways that are aligned with the goals of the lender, and there may be restrictions on how the funds can be used. For example, you can’t use a microloan to purchase real estate or pay off any existing debts, as this isn’t in line with the goals of the SBA microloan program. In short, while the program’s goals are worthwhile, it can be difficult for a business to fit their needs around the requirements of the SBA and their lender.

Our programs at Loanability can be great alternatives to microloans. Unlike the SBA, we think what you do with your funds should be completely up to you–no need to worry whether your goals align with the economic goals of a lender. Our only economic goal is to provide you funds for whatever you might need them for. We also don’t have pre-requisites for businesses and you won’t have to undergo any business training. Our funding amounts are also significantly larger than the average microloan, and we don’t cap funding at $50,000.

Microloans can be appealing to a business in the right situation. However, they just don’t work out for a lot of businesses. If your company doesn’t happen to fit the profile that your local lender is looking for, or the reason you’re seeking funding isn’t a reason they like, you might not be qualified through no fault of your own. At Loanability we’re looking for reasons to fund your business, not reasons to disqualify you. Our programs are flexible, easy to understand, and keep the requirements and limitations to a minimum.