The Small Business Administration (SBA) is a program that lends money to nonprofit creditors who in turn loan small businesses. The lenders give startups and small businesses loans of up to $50,000. The amount can be used as working capital, for equipment purchase and supplies procurement, among other things.
It’s a suitable finance option for businesses that need less than $50,000 and have a good business plan and good credit. They are great for both startups and well-established companies. In this article, we look at SBA microloans – A small loan with flexible repayment.
Let’s see how this loan work:
SBA microloans involve a multi-step process before the cash gets into the borrower’s account. First, there is the SBA and an Intermediary lender. The SBA lends an Intermediary some money at a discounted rate. The latter then lend small businesses owners at their own terms and interest rates. It is one of the most easily accessible SBA loans.
Eligibility
In most cases, SBA doesn’t critically review credit scores and creditworthiness when offering a microloan. Visit Sverigekredit.se to see some basic parameters they use to determine loan qualifications.
The intermediary that you borrow directly from has the criteria they follow in awarding these loans. Here is what you will need to qualify for an SBA microloan, well, apart from the fact that your business should be profit-based.
1. Average Credit
You don’t necessarily need excellent credit to qualify for an SBA microloan. Most microlenders prefer an average credit score of at least 575. Most of their customers are people trying to rebuild their credits or have a poor credit history. Just make sure you don’t have black marks such as bankruptcy on your credit report.
If you have high-value collateral or the business is bringing in good revenue, the lender can look beyond your low credit and grant you the loan you applied for.
2. Collateral or Guarantor
You need collateral to get an SBA microloan. It gives the microlender assurance of getting their money back should you default your payments. You can use business assets like equipment and account receivables as collateral or personal assets like a car and home. Any asset you buy using the loan can also be used as collateral.
3. Ability to Repay the Debt
All lenders have to make sure you’re able to repay the loan before they lend you their money, and so are microlenders. You can prove your ability to pay back the microloan through financial projections or existing cash flows from your business.
That is why you will be required to present a business plan before getting an SBA microloan. This is the opportune time to convince the creditor you can comfortably pay the loan on time. A good business plan should have;
- The value proposition of your business.
- Competitors and target market analysis.
- Marketing strategies
- Growth plan and strategies
- Business management
- Financial statements
- Financial projections
SBA Microloan Costs
Since SBA lends intermediaries money at a significant discount, borrowers will have reasonable costs and terms. Like mentioned before, the maximum amount you can take in this program is $50,000. The ultimate amount you qualify for will depend on the intended purpose and creditworthiness.
You and the lender will agree on the repayment term, but most of these loans don’t go beyond six years. SBA microloan interest rates range from 8% to 13%, varying from one intermediary lender to another. However, the SBA sets guidelines on the maximum rate that intermediaries should charge, considering their cost for acquiring the loan.
To get an SBA loan, you first need to identify a suitable microlender near you, then put all requirements in order and send in your application.
Conclusion
SBA microloans are an excellent option to take care of the small financial needs of your business enterprise. It is a good option for startups, established companies, and individuals with low credit history. With it, you get to enjoy fair interest rates and a flexible payment period.
