SBA Micro Lending and Business Capital
Due to tough economic times, small businesses might struggle securing capital funds from credit lenders, banks, or personal resources such as friends or family. Small businesses financial support in order to survive and ultimately maintain their business. The Small Business Administration (SBA) facilitates a small loan assistance program that can lend up to $35,000 to small businesses.
Micro lending from the SBA is specifically geared toward small, growing businesses. Newly established businesses such as start ups can receive up to $35,000 with a SBA Microloan. Micro lending is advantageous to those who have little to no credit history or who are low-income borrowers.
SBA does not give loans directly to the business, but gives funds to designated intermediary lenders. Intermediary lenders are community lenders in the nonprofit sector who have experience in money management, lending and technical assistance. On average, an SBA loan is about $13,000.
Terms: Depending on the amount of the loan, the risks, and the requirements of the lender loans require personal guarantees.
Technical: Before borrowers are considered eligible to receive a loan, they may be required to fulfill a training or planning course.
Interest Rates: SBA micro loans interest rates range from 8-13%
Credit Score: Lenders might check into a business’ credit score if they think that they will not meet the above 575 score. However, what lenders are really looking for is a business’ ability to take on new debt.
Term: A typical micro loan lasts six years
Sanctioned Use of Funds: SBA loans cannot be used to pay off existing debt or purchase real estate. SBA loans are meant to be used for working capital or the purchasing of supplies, machinery, equipment, etc.
Collateral: On average, a lender will require collateral and personal guarantee for SBA loans.
Businesses should make loan decisions based on evaluations and realistic expectations. If a business is not viable to take on a loan, especially in economic depressions, they should reconsider.