Business Credit Center

Getting a business loan: microloans

How can you access microloans offered by community development lenders?

Published: October 28, 2015
Updated: May 01, 2017

Big dreams can often be bankrolled by small amounts of money. If you're a small business owner or a hopeful entrepreneur, you may be able to access a microloan to start or grow your business. Here's what you should know about microloans, how to find them, and how to apply for them.

What is a microloan?

A microloan is a short-term loan (from six months to five years) for amounts up to $50,000. They're offered by community development lenders, such as Accion USA and Opportunity Fund, that focus on helping entrepreneurs and small businesses grow. 

Organizations that offer microloans are usually funded by government agencies like the U.S. Small Business Administration (SBA), banks, private donors, and other investors. In turn they provide funds to small businesses or entrepreneurs who meet certain criteria and who may not be able to access financing through more traditional means.

What are the criteria for getting a microloan for your business?

Microlenders will have lending and credit requirements for businesses seeking microloans. However, microlenders typically have more flexibility than traditional lenders who usually require three years of operations and an established cash flow. For example, once microlenders get to know you and your plans for business growth, they can consider financing your start-up business based on a business plan and your projections for cash flow. They often do require some form of collateral, however, as well as the personal guarantee of the business owner.  

Depending on how a microlender is financed, a microloan can be used for:

  • Working capital

  • Inventory or supplies

  • Furniture or fixtures

  • Machinery or equipment

  • Real estate

Each microlender is looking for someone with a good business idea but for some reason or another can't get access to capital. Microlenders often specialize in providing loans to women, minorities, lower-income individuals, and other entrepreneurs facing funding challenges.

In determining whether to lend, the most important criteria a microlender will look for are a strong business vision, an understanding of the marketplace and the competitive landscape, and financial planning. Many people have not developed this specialized knowledge, but microlenders can help. The mission of microlenders is to work with entrepreneurs to develop business plans, understand how much they might need to borrow, and walk them through the steps of applying for a microloan.

How to find and apply for a microloan

The SBA website provides a list of microlending organizations. In addition, Wells Fargo supports many of the microlending organizations. Once you find an organization that fits your needs, the first step is to learn what it requires to apply for a microloan.

  • Most microlenders require that you gather financial information, including personal and business credit history, and financial documents such as tax returns. The list of required financial information and documents is typically available on microlenders' websites.

  • Microlenders will also require a business plan. Some offer the resources on how to develop one or can refer you to the Business Plan Center.

  • The majority of microlenders allow you to apply for a microloan online. Some require that you meet them in person in their office.

You can also explore Venturize, a free online resource that includes a directory of mission-driven lenders for small business owners. It was created by Opportunity Finance Network, a national network of mission-driven financial institutions investing in low-income communities

By starting small and taking all the necessary steps, you could grow your business — or even your business idea — into a successful venture.