Microloans: Overview and Best Microlenders
Microloans can be a good fit for those who struggle to qualify for traditional financing, such as startups and borrowers with limited credit.
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What is a microloan?
A microloan is a small-dollar business loan that’s generally available in amounts up to $50,000. These small-business loans are geared toward entrepreneurs who can’t qualify for traditional financing, such as startup founders and people with limited credit histories.
Microloans are also a good option for businesses owned by women, minorities and veterans, as well as those in low-income and underserved communities.
How much do you need?
We’ll start with a brief questionnaire to better understand the unique needs of your business.
Once we uncover your personalized matches, our team will consult you on the process moving forward.
How do microloans work?
Microloans typically work like traditional term loans: You receive a lump sum of capital from a lender and repay it, with interest, over a specific period of time.
Repayment terms, interest rates and maximum loan amounts will vary based on your lender. For instance, SBA microloans funded by the U.S. Small Business Administration are available in amounts up to $50,000 with repayment terms up to seven years. Loans from the nonprofit Grameen America, on the other hand, are available only up to $2,000 with repayment terms of six months.
Microloans can be used for a range of purposes related to starting or growing a business, such as covering day-to-day expenses, purchasing inventory or making payroll.
Best microlenders
Microloans are available from SBA intermediaries, the U.S. Department of Agriculture, nonprofit and community organizations as well as peer-to-peer lenders.
Microlenders usually have flexible eligibility requirements and are often willing to work with startups (even those with no revenue yet) and businesses with bad credit. Many of these lenders also provide free or low-cost training and business coaching to help entrepreneurs develop knowledge and skills.
The best option for you will typically be wherever you can qualify with the most competitive rates and terms.
SBA microlenders
SBA microloan
620
Microloan size: Up to $50,000.
Interest rates: Vary. Typically 8% to 13%.
Availability: Nationwide.
The SBA microloan program is funded by the SBA and administered through a network of community lenders, also called intermediaries. These microlenders offer loans to small businesses that may not qualify for other types of SBA loans.
Interest rates, repayment terms and eligibility requirements on SBA microloans vary based on the intermediary lender. Each lender can set its own standards, subject to SBA guidelines — repayment terms, for example, cannot exceed seven years.
According to the SBA, the average microloan issued in the 2023 fiscal year was $15,799, much lower than the maximum available loan amount.
As of September 2023, 160 SBA microloan intermediaries serve all 50 states, Washington, D.C., and Puerto Rico. You can find a lender that serves your area by searching the directory on the SBA’s website.
» MORE: Compare the best SBA lenders
Farm Service Agency
Microloan size: Up to $50,000.
Interest rates: Based on the Farm Service Agency direct operating/direct ownership loan interest rate at the time of loan approval or loan closing. As of September 2023, the rate is 5.125% for operating loans and 5% for ownership loans.
Availability: Nationwide.
Part of the U.S. Department of Agriculture, the Farm Service Agency (FSA) offers two types of farm loans through its microloan program. These loans are designed to help smaller farms, including nontraditional operators — such as farm trucks, farms participating in direct sales and community supported agriculture, or CSA — access capital.
Farmers can apply for:
Direct farm ownership microloan. Used for a down payment on a farm and to repair or restore farm buildings. Maximum repayment term is 25 years.
Direct farm operating microloan. Used to buy farm equipment, tools and livestock or cover other expenses related to essential operations. Maximum repayment term varies based on the loan’s use case but cannot exceed seven years.
To qualify for either of these microloans, you must meet the guidelines outlined by the FSA. You can contact your local FSA office for more information and assistance with the application process.
Accion Opportunity Fund
Accion Opportunity Fund Small Business Working Capital Loan
600
Microloan size: $5000 to $250000
Interest rates: 8.49% to 24.99%.
Availability: 45 U.S. states.
Although Accion Opportunity Fund offers a larger maximum loan amount, its funding program is similar to that of microlenders.
To qualify for an Accion business loan, you’ll need at least three months in business and a minimum credit score of 600 or higher. The annual revenue requirement varies based on the loan program.
When you apply for a loan, Accion will present several offers, all with different terms and interest rates, and you can choose the one that fits best. Accion loans are available from $50000 to $250000 with repayment terms that range from 12 to 60 months.
Accion also offers free business coaching and mentoring as well as a library of financial resources for small-business owners.
LiftFund
Microloan size: Varies based on program, starting at $5,000.
Interest rates: Typically around 10%; can vary based on your qualifications.
Availability: Alabama, Arkansas, California, Florida, Georgia, Kentucky, Louisiana, Mississippi, Missouri, New Mexico, New York, Oklahoma, South Carolina, Tennessee and Texas.
San Antonio-based LiftFund offers small-business loans to entrepreneurs in 15 states. This nonprofit, community development financial institution (CDFI) issues SBA microloans, SBA 504 loans and specialized types of financing.
LiftFund can work with businesses with limited credit, collateral or experience and, after you apply, help you understand your funding options. Borrowers can also attend group training sessions and receive one-on-one consultations from business coaches.
Ascendus
Microloan size: Up to $50,000.
Interest rates: 6% to 9.99% (can vary by state).
Availability: Nationwide, except Vermont and California.
Ascendus is a nonprofit lender that offers a wide range of loan products, especially for startup businesses and those with limited or bad credit. The lender’s microloan program provides financing up to $50,000 that can be used for a variety of purposes. This program also includes training and education for your business.
To qualify for a microloan, you’ll need to have been generating consistent revenue for at least six months, have a minimum credit score of 575 or higher and no more than $3,000 in unpaid or past due debt.
Ascendus also offers a business line of credit program, an entrepreneurs of color fund, as well as programs specific to certain locations and industries.
Justine Petersen
Microloan size: Varies based on the program, but typically up to $50,000.
Interest rates: 6% to 20%.
Availability: Missouri, eastern Kansas and southern and central Illinois.
Justine Petersen, based in St. Louis, offers several types of microloan programs for small businesses. This not-for-profit corporation offers SBA microloans and microloans through a partnership with a local CDFI as well as through its Able Biz microloan program.
These loans are available up to $50,000 with repayment terms and interest rates that vary based on the program and your business’s qualifications. Justine Petersen also provides smaller microloans through the Able Life program, offering up to $2,500 with no collateral required.
This microlender focuses much of its efforts on expanding access to capital, making it a good option for business owners with a limited credit history or those in traditionally underserved communities.
Justine Petersen also offers counseling, training and mentorship for small-business owners. Plus, borrowers who fund with this organization can access post-loan assistance to help them reach their goals for expanding their businesses.
Kiva U.S.
Microloan size: Up to $15,000.
Interest rates: 0%.
Availability: Nationwide.
Kiva U.S. is a part of Kiva, a nonprofit that offers peer-to-peer microlending in nearly 80 countries.
To receive an interest-free microloan of up to $15,000 through Kiva U.S., you must apply for pre-qualification and then invite friends and family members to lend to the venture. Because Kiva doesn’t require a minimum credit score, years of cash flow statements or collateral, this process helps you establish creditworthiness through “social underwriting.”
Once that happens, Kiva opens the loan to people who help crowdfund the desired amount. Fundraising can take about eight weeks, and you have up to 36 months to repay your loan.
Kiva might be a worthwhile option if you need a smaller amount of capital ($15,000 or less) and have a strong social or community following.
Grameen America
Microloan size: $500 to $2,000 for first-time loans.
Interest rates: 15% to 18%.
Availability: In 21 U.S. cities and Connecticut.
Grameen America has a nontraditional microlending system: You must form a group with four other women you trust, and then your group participates in financial training.
After the training, each member receives a microloan to build their small business. The women in your group meet weekly to make repayments and receive ongoing education.
First-time loans are available from $500 to $2,000 and must be repaid on a six-month term. Every six months, depending on your repayment history and support from your Grameen America location, you may have the opportunity to receive larger loans.
Grameen America does not require a minimum credit score, business income or collateral to qualify for funding. The microloan program is designed to help women entrepreneurs grow their businesses, build their credit and create jobs in their communities.
Pros and cons of microloans
Pros
Flexible eligibility requirements; startups and businesses with limited or bad credit may qualify.
Loan options targeted to business owners in underserved communities, such as women, minority groups, veterans and those located in low-income areas.
Competitive interest rates.
Lenders typically offer business training and educational resources.
Cons
Small loan amounts.
May have higher interest rates and shorter repayment terms compared to traditional loan options.
Options may be limited by your location; many microlenders only serve their local or regional community.
Can be slower to fund, especially compared to online loans.
How to get a microloan
Follow these steps to learn how to qualify and get a microloan for your small business.
1. Understand your eligibility requirements
Microlenders typically have flexible business loan requirements. Some lenders may not even require a minimum credit score or annual revenue. Nevertheless, it’s important to evaluate your business’s credentials to get a sense of where you stand and what loan options you may be able to access.
In general, lenders will consider factors such as:
Personal credit score.
Annual revenue.
Time in business.
Past or current debt obligations.
Previous bankruptcies.
Depending on your lender and loan option, you may also be required to provide collateral.
2. Find and choose a microlender
The best microlender for your business will likely be the one that offers you the most competitive rates and terms. Other factors, like funding speed and educational resources, however, may also play a role in your decision.
As you start your search, you’ll want to consider microlenders that are local to your area. You can use the SBA’s website to find SBA microloan intermediaries by state, as well as refer to regional business organizations for other microlending options.
3. Submit your application
Many microlenders allow you to complete and submit your loan application online. You’ll provide basic details about you and your business — and upload the required documentation.
Typically, you’ll need to include:
Business and personal bank statements.
Business financial statements.
Business and personal tax returns.
The time it takes to receive a decision on your application will vary based on the microlender. The lender may also contact you during the process to discuss your options, or to ask for additional information.
» MORE: How to get a business loan
Microlending alternatives
If you don’t think a microloan is right for your business, or simply want to explore other options, you might consider:
Different offerings from microlenders. Many microlenders also offer alternative forms of funding, including SBA 7(a) loans, business term loans and business lines of credit. LiftFund, for example, offers a loan program that provides financing up to $500,000 to historically underserved businesses that are looking to buy commercial real estate.
Online lending. If a microloan won’t offer you enough funding, see whether you can qualify for other types of business loans. Some online lenders are willing to work with newer businesses or those with less-than-perfect credit histories. You should compare factors like interest rates and funding times to find the right fit for your needs.
Community lending. If you’re seeking capital but aren’t sure where to start, you might consider connecting with a lender in your community, like a CDFI, then exploring your financing options.
Ready to get funding?
If you’ve been in business for less than two years: Consider our list of the best startup business loans.
If you have poor personal credit: Look for loans with lenient credit qualifications that are targeted toward businesses with bad credit.
If you need more funding than typical microloans offer: Start by researching the best small-business loans out there.
If you need to cover seasonal needs or frequent cash flow gaps: A business line of credit is a revolving source of capital that may be better suited to your needs.
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