Today, I’m going to tell you about a little known, federally
funded loan program that could help you get the financial jump start that you
need. And it may not be around for much longer, so I feel an urgent need to get
this information out to you.
It’s called the SBA Microloan program.
We all know that the economy is in the dumps. The stock
market has tanked. Layoffs are on the rise. Just last week, Ford reported 2,600
layoffs new layoffs. CNN says that the economy will shed 1.2 million jobs this
year. At the same time, the credit crisis is leading to the tightening of
credit for businesses of all sizes.
And, this information may discourage you. But don’t be
discouraged! This may in fact be one of the best times to start a business.
Some of the best businesses are started in down economies. Partially because
there is less competition. There are fewer entrepreneurs willing to go out
there and get what is available to them. And hopefully, this... can help you.
The Small Business Association’s Microloan program might be
able to help. The Microloan program helps entrepreneurs who need small amounts
of capital. So if you own or would like to start a business but are having
trouble qualifying for a traditional bank loan, the Microloan Program might be
right for you.
Here’s how it works: the SBA doesn’t lend you the money
directly. Instead, it makes funds available to local non-profit intermediary
organizations that, in turn, provide loans of $35,000 or less to existing small
businesses. These intermediary organizations have their own lending criteria,
set their own rates, and ensure that all credit decisions are made locally.
These loans are not grants. They must be paid back in six
years or less. And the loans can’t be used for everything. You can’t use the
money to pay off existing debts or to purchase real estate. But an SBA Microloan
can help you obtain working capital or finance the purchase of equipment or
inventory. More specific details will be determined by your intermediary
lender. The lender sets the interest rate and determines how much money you
can receive - most applicants will not receive the $35,000 maximum. The SBA
reports that the average loan amount is around $13,000. But the paperwork is
relatively simple, the loans can be approved quickly, which is helpful if you
need capital in a hurry, and entrepreneurs who wouldn’t qualify for many
traditional business loans do qualify under the Microloan program. An extra
benefit of the program is that borrowers can receive business-based training
and technical assistance. This guidance can be a helpful to you, as a new business
owner.
If you want to receive a Microloan, the first thing you need
to do is find a intermediary organization. You can do this by contacting your
local SBA office. If you don’t know where your local office is, you can always
look it up on the Small Business Association’s website. Go to www.sba.gov, and
then look under the local resources section. You’ll see your local office
listed there. And while you’re on the website, take a look at the free online
courses that the SBA offers. You can get information on business topics such
as e-commerce, marketing and preparing a business plan without ever leaving
your desk.
After finding an intermediary organization, take a look at
the loan application. You will have to provide some information on your
company. If your company is new and you don’t know how to answer the
questions, go back to the Small Business Association website and take another
look at the free courses they’ll provide you with more information on the
practicalities of starting your business.
You’ll also need collateral - an asset that you pledge toward
repayment of the loan, should you not be able to repay the loan in cash. If
you aren’t sure what you can use as collateral, make a list of the resources you
already have for your business. Do you have office equipment? A company
vehicle? These are items that can be used for collateral. If you are still
not sure what to use as collateral, ask your intermediary lender. They might be
able to help you find some creative solutions. You should also be ready to
sign a personal guarantee promising to repay the money.
Because the Microloan program is funded with federal
dollars, it is vulnerable to changes in the political landscape, and the last
few have been tumultuous - with funding being cut further each year. In his 2008
budget, Bush proposed to cut funding to the program entirely, suggesting that
other SBA loan programs, especially the 7(a) business loan program could pick
up the slack. While investigating the 7(a) program is also worthwhile for
small businesses, it does tend to give larger loans. The Microloan Program is
still the easiest way for a small businesses that doesn’t qualify for a bank
loan to obtain credit, so as the credit market tightens, more entrepreneurs
will find themselves in this pool. What is going to happen to the program in
the future? Only time will tell. But if you are an entrepreneur or small
business that needs capital now, the SBA Microloan program currently remains a very
viable option.