Small Business Startup Series – SBA Microloans

This is the fourth and final installment in our series on starting your small business, securing funding, and navigating taxes. 

Securing funding is one of the most challenging things about starting a small business. Grants are one way to go, but if you don’t want to compete and wait for the money, then Small Business Association microloans are an alternative. So, keep reading to find out if microloans can help keep your small startup.

Anatomy of an SBA microloan

SBA microloans are just what the name implies. They are loans up to $50,000, backed by the SBA, and given out through third-party lenders. That SBA backing is important because lenders don’t have to worry about default. And when lenders feel secure, they are more apt to dole out loans. That’s why most small businesses have a fighting chance at securing an SBA microloan, even without an established credit history.

That’s the good news.

The other side of the coin is a little more business-like. Because, unlike the grants we discussed last week, these loans must be paid back. And interest rates are not part of the attraction. Most run between 6% and 9% as of this posting. That can be a little stiff for some small businesses. So, remember that the amount borrowed and repayment time will impact your startup’s bottom line.

Factor those numbers into your budget before taking the loan. A good business loan calculator like this one can help you determine the costs.

SBA Microloan uses

The other thing to consider is what you need the loan for. For example, SBA microloans can be used for various things like machinery, furniture, and inventory. But they cannot be used to pay down other debts or to purchase real estate.

How to get an SBA microloan

Okay, maybe you’ve determined that the loan repayment is doable and the purpose of the loan is valid. Your next step is to look at the list of lenders on its website. You’ll apply directly through the intermediary lender. They will verify the purpose of the loan and let you know what paperwork is needed. Going through the loan process can help you. It can force you to analyze several aspects you may not have considered. That process can help you overcome weaknesses while getting the necessary funding. A win-win!

The bottom line

SBA microloans are one of the fastest ways to get the necessary funding for your business. And the SBA backing makes them a prime resource for existing and new businesses without a long credit history. But you still have to be careful. Review the loan terms with a CPA to see if it fits your budget. They can also let you know of any unexpected tax consequences.

That’s the end of our four-part Small Business Startup series. If you missed the other weeks, be sure to go back and check them out. They’ll give you excellent resources and ideas for the path ahead.