3 most common Small Business Administration loans—and which type might be good for your business

Microloans represent some of the easiest SBA loans to get for small businesses, but are the smallest loans it offers with a cap of $50,000. The average microloan amount is $13,000, and the purpose of these smaller funding packages is to help a small business keep its doors open through “marketing, management, and technical assistance to microloan borrowers and potential borrowers,” according to the SBA. Interest rates range from 8% to 13%.

A microloan may be appropriate for an owner of a new or existing business that needs a boost to achieve shorter-term goals such as launching or expanding operations. Unlike other SBA offerings, these microloans are also the most friendly to startups, as an applicant does not have to present the financial history of the business—having two years of industry experience, collateral, and a solid business plan are among the criteria instead.

Another requirement for SBA microloans is “good character,” measured by whether an applicant has a history of theft and fraud, among other crimes. (However, a criminal record does not automatically disqualify someone—it just might take more work to win over lenders). Interestingly, research suggests that, contrary to the popular assumption about the character traits of successful business owners, having an extroverted or neurotic personality traits does not make them more likely to secure a SBA microloan. A 2021 quantitative study of 177 small business owners found no strong correlation between successful microloan approvals and extrovert traits such as being sociable, talkative, and assertive, which are often associated with successful startup founders and business owners. 

While the least popular loans compared to 7(a) or 504 loans, microloans disburse the most money to women- and minority-owned small businesses. Data from 2022 is not yet available as of publication, but the Congressional Research Service data shows that in 2021, SBA approved 4,510 loans valued at $74.6 million; 61% of loans and 41% of loan dollars were awarded to minority-owned small businesses, and 48% of loans and 41% of loan dollars were awarded to women-owned businesses.

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