Applying for a Microloan for Your Startup

Susan GuilloryUpdated May 18, 2023

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If you’re just starting up your company, you could likely use a little financial help. You might not need a big loan. Maybe you just need $10,000 or $20,000 to help get your venture off the ground. Even so, you may find that traditional banks won’t lend any amount of money to a startup that doesn’t have an established credit history.This is where microloans for startups can be helpful.Microloans are small (up to $50,000), short-term loans, typically with a low interest rate, extended to new startups and small businesses with only a few employees. They are commonly offered by nonprofit organizations that have a particular focus, such as lending to women, minorities, or other underserved entrepreneurs. Along with loans, many microlenders also offer free business mentorship, training, and assistance.Read on to learn more about microloans for startups, including how they work, where to find them, and how to apply.

Microloan Programs Available for Startups

You won’t find as many lenders offering microloans for startups as you do traditional loan lenders, since it’s a bit of a niche offering. But they are out there. Here are five recommended microloan lenders based on a Google search of “best microloans for startups” performed on May 10, 2023.

1. SBA Microlenders

The Small Business Administration (SBA) Microloan program offers funding to small businesses that may not qualify for other types of SBA loans. The proceeds of these loans can be used to pay for a variety of business expenses, including working capital, inventory, furniture, or equipment. SBA microloans are funded by the SBA and administered through a network of community lenders (called intermediaries). Microloan amounts can go up to $50,000 but the average loan amount is $13,000. The maximum repayment term allowed for an SBA microloan is six years. Interest rates vary depending on the intermediary lender but generally range between 8% and 13%.You can find a lender that serves your area by searching the directory on the SBA’s website.

2. Accion Opportunity Fund

The Accion Opportunity Fund (AOF), which is part of the global nonprofit Accion, offers microloans to startups and businesses that might not qualify for financing elsewhere. The AOF doesn’t set a minimum credit score requirement. Their annual revenue requirements vary depending on the loan program.AOF offers microloans of $5,000 to $100,000 with repayment terms of between 12 and 60 months, and doesn’t charge prepayment penalties. Interest rates depend on your credit and financial situation but range from 5.99% to 17.99%. In addition to financing, AOF offers educational resources, coaching, and support networks.

3. LiftFund

LiftFund is non-profit organization that offers a range of small business loans, including microloans and SBA loans to entrepreneurs in the following states: Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Missouri, Mississippi, New York, New Mexico, Oklahoma, South Carolina, Tennessee, and Texas.The lender specializes in providing funding opportunities for startups that may have limited credit, collateral, or experience. The only eligibility requirements they list are that you must be at least 21 years old, your business cannot be in the adult entertainment industry, and you cannot have an active bankruptcy. LiftFund also provides educational support for borrowers, including a digital library of resources to help you learn new skills like marketing, finance, and management.

4. Kiva U.S.

Kiva is a nonprofit peer-to-peer lender that helps new businesses in underserved communities access crowdfunded loans. They offer interest-free microloans of up to $15,000.The process works differently than other types of small business loans. After filling out a brief application form, you’ll then have up to 15 days to invite your friends and family to lend to your business. This helps you establish the creditworthiness of your startup. Once that happens, Kiva opens the loan for the next 30 days to people who can help crowdfund the desired amount. You then have up to 36 months to repay your loan.Kiva might be worth exploring if you need a small loan amount and have a strong community of supporters. Recommended: Crowdfund Loans for Small Business

5. Grameen America

Grameen America is focused on helping female business owners who live below the federal poverty line get ahead. The organization provides microloans (starting at no more than $2,000), financial training, and support to members. Their microloans are also reported to Experian to help female entrepreneurs build credit as well. The process for applying for a Grameen America microloan is different from other lenders. You start off in a small group of women and together take a financial training program. After that, you’re eligible to receive a microloan as you continue to network and learn during weekly meetings. Interest rates on microloans range from 15% to 18% on a declining balance. There are no additional charges such as origination, late or monthly fees.

Microloans for Startups: Eligibility and Requirements

Eligibility standards for microloans will vary, depending on the lender. Those offering SBA loans may have more stringent credit score requirements than other microloan lenders.If you apply for a microloan with a lender that has a particular lending audience, you may need to fit into a certain ownership category, such as women or minorities. Many microloan lenders will evaluate your ability to repay the loan by looking at your credit score, business revenue, any other sources of income you might have, as well as the length of time you’ve been in business.

How Can I Use a Microloan for a Startup?

A microloan can generally be used for any business-related expense or as working capital. You could use the funds to hire staff, buy supplies or equipment, renovate your office, or pay for legal fees.Read through your loan paperwork to see whether there are any parameters for what you can or cannot spend the loan funds on before you sign your loan agreement.

How to Apply for a Microloan for My Startup

The process for applying for a microloan varies, depending on the lender. Many online applications for microloans for startups are simple and ask little more than your business details, revenues, and personal information, since you may be required to personally guarantee the loan. You might hear back right away or the lender may require a few days or weeks to review your application.If you apply for an SBA microloan through a bank or other lender, the process may require more paperwork, such as financial statements. You may also have to apply in person rather than online.It’s generally a good idea to check what you’ll need to apply before you begin the process. You’ll want to gather all the details and paperwork, and then dedicate some time to the process. Otherwise, you risk not being properly prepared and your application being delayed because you’re missing some key piece of information.Recommended: Guide to Alternative Small Business Loan Options

Additional Resources for Startups

Besides financing, you might welcome other forms of support for your startup. Here are some resources that offer free assistance to new small businesses, such as access to mentors, help creating a business plan, business workshops, and training sessions.

The Takeaway

Not all businesses need a traditional bank loan, which can go as high as $5 million. If you’re starting a new, small-scale venture, you might simply need a little bit of extra capital to get your business off the ground. Finding the right lender for the size of loan you need is important, as is finding one willing to lend to a new startup.Lantern by SoFi can help you find a small business lender that’s the perfect fit. You can use our fast online search tool to get a personalized small business loan option in minutes.Let Lantern help you find the right financing solution for your small business.

Frequently Asked Questions

What is a microloan?

How can I get a microloan?

How much is an SBA microloan?

Photo credit: iStock/alvarez

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About the Author

Susan Guillory

Su Guillory is a freelance business writer and expat coach. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards.

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