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Applying for a Microloan for Your Startup

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Susan Guillory

Susan Guillory

Updated August 16, 2021
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Applying for a Microloan for Your Startup; Microloans can be a great funding option for your startup. Learn more about them from Lantern by SoFi.
If you’re just starting up your company, you may need a little extra financial help to get your business up and running. You might not need a big loan, like $100,000 or more. Maybe you just need $10,000 to buy a piece of equipment. Even so, you may find that traditional banks won’t lend such a small amount to a startup that doesn’t have an established credit history.This is where microloans for startups can be helpful.Unlike sole proprietor loans, which are typically for higher amounts (as high as $5 million), microloans are for smaller amounts, even as low as $500. Startups that don’t have an established credit history may be eligible anyway. 

Microloan Programs Available for Startups

You won’t find as many companies 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, for example, are the five top lenders, based on an internet search for “microloans for startups” performed on July 28, 2021.

1. Small Business Administration

Among the loan programs that the SBA sponsors for small businesses is its microloan program. SBA-approved lenders offer financing up to $50,000 to qualifying companies.SBA microloans charge interest rates set by the lenders, but those rates are typically between eight and 13%. Repayment periods are six years or less. Lenders may require collateral.

2. Accion Opportunity Fund

The Accion Opportunity Fund is just one example of a lender that specializes in microloans for women and minorities. Approved borrowers can get $5,000 to $100,000, with interest rates as low as 5.99%.In addition to offering financing, Accion also provides programs and coaching to help entrepreneurs succeed.

3. The Rising Tide

The Rising Tide Community Loan Fund is another option for microloans. You can borrow up to $50,000 to start your business or expand it. The Rising Tide is a Community Development Financial Institution (CDFI) and focuses on lending to underserved communities.

4. Lendza

Lendza provides up to $50,000 to small businesses, with terms up to six years. Interest rates fall between eight and 13%, depending on your credit and other qualifications.

5. Kabbage

Recently acquired by American Express, Kabbage offers lines of credit between $1,000 and $150,000. Rather than paying interest on the loan, borrowers pay a flat fee based on how much they borrow.

How to Find Microloans for Startups

The examples above are just some of the lenders specializing in microloans for startups. You may find a local lender or bank who offers microloans as well.An internet search can present you with even more options. If you’re just starting out and haven’t built your business credit, or you have bad personal credit and find that you don’t qualify for other options, look at bad credit startup loans. Just be aware that these loans will likely have high interest rates and fees, so be sure you have a plan for how that money will help you make more.When you do find a few lenders you’re interested in, see what customers are saying about them. Often you can find online reviews on sites like BBB.org that will give you an indication of whether a lender is a good company to work with or not. Remember: you’ll have a relationship with this lender for years, so you want to be assured that the company offers great customer service and isn’t a predatory lender out to take advantage of customers.

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 like Accion that has a particular lending audience, you may need to be a female or minority entrepreneur. Other lenders may have requirements relating to factors like your annual revenues or time in business.However, when it comes to microloans for startups, investors typically care most about your credit. Even if your credit isn’t stellar, you’re likely to be able to find financing, but you may pay higher small business rates for the loan.

How Can I Use a Microloan for a Startup?

A microloan can 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

If you’re ready to apply for a microloan, review what the lender requires of you. 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.Once you submit your application, you might be approved within minutes, unless the lender needs to spend more time reviewing 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 have to apply in person rather than online.It’s generally a good idea to check what you’ll need to apply beforehand, 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.

Additional Resources for Startups

If your startup is brand new, you can probably use help. There are free resources like the following you can use to find mentors, get help with creating a business plan, and attend free workshops and training.

The Takeaway

Sometimes you need to borrow a large amount of money. Sometimes you need just a little. 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.
Photo credit: iStock/alvarez
The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.SOLC0821152

Frequently Asked Questions

What is a microloan?
How can I get a microloan?
How much is an SBA microloan?

About the Author

Susan Guillory

Susan Guillory

Susan Guillory is the president of Egg Marketing, a content marketing firm based in San Diego. She’s written several business books, and has been published on sites including Forbes, AllBusiness, and Cision. She enjoys writing about business and personal credit, financial strategies, loans, and credit cards. Follow her on Twitter @eggmarketing.
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