Small amounts of money can fund big dreams. 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) up to $50,000. There are many types of microloans, but we’ll focus on those funded by the Small Business Administration (SBA) in this article, as they tend to offer more favorable terms and more protections for borrowers. 

Keep in mind, the SBA offers “traditional” loans, as far as size and terms, via lenders like Wells Fargo.

The SBA also helps fund microloans, which tend to be offered via nonprofit community groups who often offer management and technical assistance for business owners.  

To receive a microloan funded by the SBA, small businesses must meet certain criteria. 

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

Microlenders typically offer more flexible terms. For example, a microlender may be able to finance your business based on a business plan and your projections for cash flow. They often require some form of collateral, however, as well as the personal guarantee of the business owner.  

Each microlender is looking for someone with a good business idea who, for some reason or another, can’t get access to capital. While microloans may be just right for some businesses, they are typically best for borrowers with limited working capital and little to no credit history. Many times they are offered specifically to borrowers in underdeveloped communities and countries or prioritized for minority business owners, female business owners, and low-income applicants.

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 a financial plan. Since many microlenders also offer support for business owners, not knowing these things may not be a deal breaker. The microlender may also be able to help you develop business plans, understand how much you need to borrow, and even walk you through the application.

What can microloans be used for?

Depending on how a microlender is financed, a microloan can be used for working capital, inventory or supplies, furniture or fixtures, machinery or equipment, or real estate. They cannot be used to refinance existing debt.

How to find and apply for a microloan

First, find an organization. The SBA provides a tool that can help you search for microlenders in your area. (Wells Fargo supports many of these microlending organizations.) 

Once you find an organization that fits your needs, find out what it requires to apply for a microloan. Most microlenders require that you gather financial information, including personal and business credit history, bank statements, and tax returns. A list should be available on the microlender’s website.

Microlenders will also require a business plan. Some offer resources on how to develop one. (Wells Fargo also sponsors a Business Plan Tool.)

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

Resources for Small Business

Use this interactive tool to develop your business plan today.

Business Plan Tool