While reports indicate the country is slowly recovering from the Great Recession, it is clear that access to capital remains a huge issue for independent businesses. One way the Obama Administration has sought to increase access to capital for small businesses is through the Small Business Administration’s (SBA) Microloan Program. The American Recovery and Reinvestment Act, passed in 2009, appropriated some $30 million for the Microloan Program. Then, in 2010, the Small Business Jobs Act increased the maximum loan amount from $35,000 to $50,000.
For booksellers seeking small, short-term loans, the SBA Microloan Program might be worth a look. Here’s a refresher on some of the program’s key features.
Microloans loans are made available through what the SBA calls “specially designated intermediary lenders,” which are nonprofit community-based organizations with experience in lending as well as management and technical assistance.
SBA’s Microloan Program provides loans up to $50,000 to start-up, newly established, or growing small businesses. The average microloan size is about $13,000. While the microloan program is open to all entrepreneurs, according to a SBA Fact Sheet, the program especially supports underserved markets, including borrowers with little to no credit history, low-income borrowers, and women and minority entrepreneurs in rural and urban areas who generally do not qualify for conventional loans, or other, larger SBA guaranteed loans.
The loans can be used for working capital; the purchase of inventory/supplies; furniture or fixtures; the purchase of machinery or equipment. The loan cannot be used to pay existing debts or to purchase real estate.
Also, each lender is required to provide business training and technical help to the businesses it lends to, the “micro-borrowers.” For example, if a business applies for microloan financing, it may be required to fulfill training and/or planning requirements before the loan application is considered.
The terms of the loan will vary according to the size of the loan, the planned use of the money, the requirements of the lender, and the needs of the borrower. The maximum term allowed for a microloan is six years. Interest rates vary, depending on the intermediary lender and costs to the intermediary from the U.S. Treasury. The rates will generally be between eight and 13 percent. Each lender will have its own lending and credit requirements, and, in general, the lender will require some type of collateral as well as the personal guarantee of the business owner.
Any bookseller interested in applying for a microloan should contact a SBA lender in their area. The Microloan Program is available in select locations in most states. For more information, it is recommended that booksellers first contact SBA at (800) 827-5722, or one of SBA’s partners, such as SCORE or a Small Business Development Center. Booksellers can also contact their local SBA District Office.
Booksellers can also call ABA Senior Public Policy Analyst David Grogan at (800) 637-0037, ext. 6662, for more information.