Microloan

A microloan is a very small loan made to a business owner who cannot easily get a bank loan. Borrowers are often startups, home-based businesses, vendors, contractors or owners with thin or damaged credit. Microloans usually pay for working capital, inventory, tools or equipment.

In the US, many microloans come through the SBA Microloan Program. The Small Business Administration (SBA) does not lend to the business. It lends to nonprofit, community-based intermediaries, many of them Community Development Financial Institutions (CDFIs), which then relend to small businesses. As of 2026, SBA states that:

• the maximum microloan is $50,000, and the average is about $13,000;
• the longest repayment term is seven years;
• rates are set by the intermediary and generally fall between 8% and 13%; and
• proceeds cannot be used to buy real estate or pay off existing debts.

Intermediaries also receive SBA grants to give borrowers technical assistance, such as help with marketing and management. They must also keep a loan loss reserve fund.

Why it matters for lenders

Microloans are hard to make profitably. A $10,000 loan can take as much underwriting work as a $200,000 one but earns a fraction of the interest. Microlenders survive by keeping the process short: simple applications, clear written policy, delegated approvals for standard loans and automated payments.

Program rules add tracking work. An SBA intermediary keeps its microloan money in a separate revolving loan fund. It must check that each loan fits the program limits, keep the required reserve and report to SBA. Many microlenders blend SBA money with state, bank and foundation capital, each with its own limits.

How it works in practice

A microlender receives an application from a hair salon owner who needs $12,000 for new chairs and dryers. A loan officer reviews three months of bank statements and the owner's credit report, then checks the fund's policy. The loan fits the officer's delegated limit, so she approves it the same week. Because it is well under the program cap, finance tags it to the SBA microloan pool at booking. The owner also books two coaching sessions on pricing.

Payments arrive by ACH each month and post back to the SBA pool. The system shows the required reserve next to the actual balance. Where this is done in spreadsheets, staff often discover at reporting time that a loan above the cap was booked to the SBA pool, or that the reserve has fallen short.