How to Get a Micro-loan for a Small Business With Bad Credit?

February 2020

Microloans can be a good way to get capital if you’re a small business owner with a limited credit history. The benefit in working with a nonprofit lender can be significant – less stringent requirements than a bank, is the primary plus - but this type of loan isn’t the right fit for everyone. Microloan amounts are typically low, which can be a drawback. And you may need to put some effort into finding a lender whose mission aligns with your business.

## What is a microloan?

These are typically small-sum, short-term loans for small business owners. The amount you can borrow ranges from about $1000- $50,000. Some microlenders are mission-based, providing funds from government or nonprofit programs that are intended to help build opportunities in disadvantaged communities. Others may work with specific groups such as veterans or women. But there are microlenders whose mission is somewhat broader – loaning to small businesses regardless of their location or who owns the business.

Microlenders may also provide mentorships and financial counseling to small business owners, as part of the loan package or as a separate offer.

## How do I qualify for a Microloan?

Requirements differ depending on the lender. Typically, you will need to have a detailed business plan, a decent personal credit history. Microlenders may want to see that you have invested in your own business. In some cases, you may need collateral to qualify for a microloan.

## Where do I find Microlenders?

A good place to start is the U.S. Small Business Administration. Their microloan program provides loans up to $50,000 to help small businesses and certain not-for-profit childcare centers start up and expand. The average microloan is about $13,000.

One benefit of working with the SBA is that the maximum repayment term for an SBA microloan is six years, which is longer than a typical short-term loan.

You don’t apply to the SBA for these loans, but instead work with an SBA approved intermediary in your area. Approved intermediaries make all credit decisions on SBA microloans. You can find out who the SBA microlenders in your area are by visiting your local SBA District Office or you can view the list of participating microloan intermediary lenders.

Interest rates vary, depending on the intermediary lender and costs to the intermediary from the U.S. Treasury. Generally, these rates will be between 8 and 13 percent.

You can also check the Aspen Institute’s FIELD program for information on microlenders across the country. This is a good source of information on mission-based lenders that offer funding in specific demographics or locations. As an example, residents of the southern U.S., including Texas, Georgia and Florida, can apply to the LiftFund for microloans to buy equipment and supplies. LiftFund microloans in microloans are also meant to help small-business owners build good credit histories.

Another interesting option is Kiva U.S., which offers interest-free microloans, if you can prove that you have “social capital by having a small number of your friends and family make a loan to you.” If you can do this, you qualify for a microloan – even if you have a less-than-perfect credit history. But you cannot currently be in foreclosure, bankruptcy, or under any liens.

## Fast Funding for Small Businesses

You may not qualify for a microloan, or you may not want to put in the effort – or take the time to attend financial training or business management classes - required to successfully apply for this type of funding. Certainly, if you need to access funding quickly, a microloan is typically not going to be your best choice. You also may not be able to build a long-term relationship with a microlender, which enables you to easily access new rounds of funding as your business grows.

If you simply want to access funding quickly, consider looking into alternative funding sources. These funders offer options designed to meet the needs of smaller businesses. Business owners don’t need to have perfect credit scores to be approved, alternative lenders are more concerned about your ability to pay now than your past credit history. And the application and approval process typically takes minutes, not months.

One easy way to get the process started is by getting pre-qualified by One Park Financial, a company that focuses on helping owners of small and mid-sized businesses access funding. Visit or call 855.218.8819 and connect with a funding expert to discover the options that make sense for you and your business.