What is considered a microloan?

There isn’t a single definition of a microloan for every program and not all small loans are microloans. The SBA microloan program offers loans of up to $50,000. Most microloans are offered by nonprofit or mission-driven lenders. Generally speaking, microloans refer to smaller loans made to eligible borrowers who have trouble qualifying for traditional loans.

Are microloans hard to get?

Although they are considered generally easier to get than traditional bank loans, microloans still require underwriting and approval. There may be a credit check, and borrowers may review the business and/or business owner’s financial situations. You will have to demonstrate to the lender that you have a solid plan for using the funds to make money so you can pay the loan back. These are loans, not grants, and must be paid back.

What credit score do you need for a microloan?

There is no single minimum credit score that applies to all microloans. SBA-approved intermediaries establish their own credit requirements for SBA microloans, for example. Some microloan programs work with borrowers with limited or weak credit profiles. The Urban Institute study found that 11% of microloan borrowers had no credit score before receiving the loan, and another 26% had a score below 600. Kiva does not require a minimum credit score for U.S. loans though you cannot currently be in foreclosure, bankruptcy, or under any liens.

How long does it take to get a microloan?

Getting a microloan often takes some time, though the amount of time it will take will vary by lender and borrower qualifications. When it comes to small business loans, a well-qualified borrower with a clear plan to use the funds in a business that’s likely to be successful often gets approved faster than someone who doesn’t fit those criteria. If speed is a concern, as the lender for its current application, approval, and funding timeline before you apply.

Do microloans build business credit?

Microloans that report to business credit can help build business credit when paid on time. You’ll want to ask whether the lender reports to business credit bureaus before you apply. In the Urban Institute report, the share of microloan borrowers with a business credit record increased from 27% before the loan to 71% four years after. A microloan isn’t the only way to establish business credit. Nav’s net-30 marketplace can help you find suppliers that report to business credit.

What are the requirements for a microloan?

Just like with a traditional loan, each lender can have its own specific requirements, so don’t get discouraged if the first lender you contact isn’t a fit. SBA microloans are a little different: lenders must follow the SBA guidelines when evaluating applications and granting loans under that program, though there is still a lot of leeway in terms of the borrowers they may choose to fund. If you aren’t sure whether you may qualify, ask. Microlenders are often transparent about their eligibility criteria.

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Microloans vs. traditional loans: Which is right for your business?

Written byGerri Detweiler

Reviewed by Robin Saks Frankel

Updated September 9, 2026|12 min read

A hand writes on a notepad on a desk with a keyboard and multiple documents

Summary

Microloans offer small business loans, often to borrowers who may have trouble qualifying for traditional financing.
These loans are often offered through non-profit mission-driven lenders.
Terms are often competitive, though traditional bank loans can carry lower rates.
Find out whether a microloan or traditional loan may be the best choice for your business.

Editorial disclosure: Our priority is to provide accurate, unbiased financial information for your business. Our partners cannot pay for favorable reviews. All content is accurate to the best of our knowledge when posted. You can review more details .

We also encourage you to review our .

Microloans trade smaller loan amounts and slightly higher rates for easier qualification and hands-on support, while traditional bank loans offer larger amounts and some of the lowest rates to established businesses with strong credit and qualifications.

Often made by non-profit mission-driven lenders, microloans may work with businesses with solid prospects who don’t qualify for traditional financing because the business is too new, the loan amount is too small, or the owner doesn’t have strong credit. Nav is not a lender or a credit bureau. Credit information is provided by third-party sources.

When Salt and Savour founder David Edmondson was growing his craft sauerkraut business, for example, he turned to microlender Kiva, first for a $5,000 loan, and later for a second loan to continue growing. His business continues to flourish.

Microloans vs. traditional loans for business at a glance

	Microloans	Traditional bank loans
Typical amounts	SBA microloans are available up to $50,000 and average about $13,000	Bank loans can be much larger. 81% of all banks surveyed by the FDIC make small business loans of at least $1 million and about half make loans up to $3 million. SBA 7(a) loans are available up to $5 million.
Typical rates	SBA microloan rates are currently run up to 11% based on a cost of funds formula) Urban Institute report found an average microloan rate of 13%. Kiva offers loans at 0% to qualifying U.S. borrowers.	Rates vary by lender and borrower qualifications. Conventional small business credit may be less expensive than microloans for borrowers who qualify.
Repayment terms	The maximum term for SBA microloans is 7 years. The CDFI microloans studied by the Urban Institute averaged 33 months.	Terms vary. SBA 7(a) loans generally offer terms up to 10 years, or up to 25 years for real estate.
Credit requirements	CDFIs may lend to business owners who have not established a strong personal or business credit history. The Urban Institute found 11% of borrowers do not have a credit score and another 26% have a score below 600. Only 26% have a business credit score.	Banks typically require strong personal and/or business credit scores.
Time in business	May be available to startups. Kiva does not require any time in business to apply, and ⅓ of borrowers in the Urban Institute study had been in business two years or less.	Businesses younger than two years old often have more difficulty accessing traditional bank loans. SBA loans can be available to eligible startups, though.
Collateral	Varies but smaller loans generally do not require collateral.	Collateral is common. The FDIC found 81% of small banks and 55% or large banks often or always require collateral for small loans. However, large banks are more likely to make loans of $25,000 or less without requiring collateral.
Funding speed	Varies by lender and program.	Larger loans typically take longer to approve. But the majority of banks surveyed by the FDIC could approve a small simple loan within 5-10 business days.
Support	Many CDFIs offer business coaching, mentoring, or training (“technical assistance”) in addition to financing.	Traditional bank loans do not typically offer technical assistance.

What is a microloan?

Microloans are an important source of funding for many small businesses. These loans are generally for smaller loan amounts, though some may go up to $250,000. Microloans are often made by Community Development Financial Institutions (CDFIs) or other nonprofit lenders with a goal of spurring economic growth. Certified CDFIs reported about $2.27 billion in outstanding microfinance financing in FY2023 data reviewed by the CDFI Fund.

The SBA Microloan program caps loan amounts at $50,000, though the average loan amount is around $13,000. The SBA does not make these loans directly to entrepreneurs. Instead, it provides funds to approved, nonprofit community-based intermediary lenders which then make the loans and set borrower requirements within SBA guidelines.

What’s the difference between microloans vs. traditional loans?

Microlenders are community-based lenders, and they differ from traditional lenders (banks) in three key ways:

1. Purpose

Microlenders are community-based organizations that often provide business support services in addition to loans. Though they need to make loans that will be repaid (these aren’t grants), they have goals beyond simply profits. Because their first priority is supporting the community, nonprofit microlenders typically often offer more flexibility than traditional lenders.

How are they more flexible? First, while personal creditworthiness will often be a factor (with a few exceptions, like Kiva), they may be more flexible in terms of minimum credit score requirements, especially for borrowers who have a limited credit history or who can show they have overcome past credit problems.

Collateral requirements are often much less common with these small loans. Microlenders may look at the broader aspects of your business, rather than just your credit score or annual revenues.

This flexibility means that microlenders are often able to lend to businesses in industries that may not normally meet the qualifications of traditional lenders. For example, a microlender may be willing to lend to open a new restaurant or food truck business, where traditional lenders may be more wary of lending to these small business owners.

2. Value-added services

Microlenders do not just serve as a source of capital, but they also provide access to valuable services for small business owners. These services are usually referred to as “technical assistance”.

Value-added services among microlenders vary, and may include training, helping you perfect a marketing plan, to one-on-one consulting. Loan officers may help you understand your credit, or help you get your finances in order to put together an individualized loan package.

For many borrowers, a microlender can act as a business mentor and offer sound, personalized advice about your business venture.

3. Financial terms

Microloan APRs are often a few percentage points higher than bank loan rates but usually better than the business owner may find on their own. (If they can find them at all; it’s often hard to find traditional business loans for startups, especially for owners who don’t have a track record of success in similar businesses.)

Terms are usually straightforward and easy to understand, with no prepayment penalties or hidden surprises. Still, read the loan agreement carefully and ask about any terms you don’t understand.

A reputable microlender wants to see your business successfully pay back the loan, and will be happy to explain terms and conditions of the loan.

Pros and cons of microloans

Pros

Access for borrowers who may not fit traditional lending criteria. CDFIs may finance newer businesses, smaller loan requests and borrowers without strong established credit histories.
Startup-friendly options. One-third of the microloan borrowers in the Urban Institute study had been operating for two years or less.
Technical assistance. SBA microloan intermediaries provide training and technical assistance, and many CDFIs offer coaching, mentoring, or other business-development services.
Relatively small loan amounts. If you only need a modest amount, you may not have to borrow more than your business needs.
Some very low-cost options. Kiva, for example, offers 0% U.S. small business loans with no fees.

Cons

Loan amounts are limited. SBA microloans cannot exceed $50,000 and Kiva offers loans of up to $15,000 to U.S. borrowers.
Terms and requirements vary considerably. SBA intermediaries set their own credit requirements and loan terms, within SBA guidelines.
Personal guarantees (PG) may be required. Loans may require a PG and/or collateral.
Microloan rates aren’t always lower than conventional financing. Some borrowers may find lower rates through traditional banks or credit unions.
Funding speed varies. Some programs, such as Kiva, include crowdfunding as part of the process.

Pros and cons of traditional loans

Traditional small business loans can be attractive if your business is able to qualify and needs substantial financing.

Pros

Larger loan amounts. Nearly all banks surveyed by the FDIC make small business loans of at least $1 million, and approximately half make loans up to $3 million. SBA 7(a) loans can reach $5 million.
Potentially more competitive borrowing costs. Conventional small business credit may cost less than microloan financing for borrowers who qualify.
Long repayment periods may be available. SBA 7(a) loans generally have terms of up to 10 years, with terms of up to 25 years for real estate.
Bank approval may be faster than many business owners expect. About three-fourth of banks surveyed by the FDIC reported that they could approve their typically small business loans within ten business days.

Cons

Credit and financial qualifications matter. Banks evaluate the business’s financial condition and credit information when making lending decisions. Federal Reserve research also found that lower-credit-risk businesses were more likely to apply to banks and to be approved than medium- or higher-risk credit firms.
Collateral is common. The FDIC found collateral requirements were common, especially as loan amounts increased.
Startups may face greater hurdles. The Urban Institute research describes startup firms as particularly difficult to finance through traditional channels.

How to apply for a microloan

Your first challenge is to find a microloan lender that’s a fit for you. These lenders often work in certain geographic areas (specific states or even specific cities) and/or assist specific groups of underserved entrepreneurs. (Most small business owners find them through referrals from local organizations.)

The SBA publishes a list of microlenders who participate in the SBA microloan program here.
The Opportunity Finance Network offers a CDFI finder tool you can use to find nonprofit lenders in your area.
Accion Opportunity Fund, Kiva, and Grameen are well-known microlenders.
Your local Small Business Development Center or SCORE chapter often will refer you to local microlenders.

Doing your research will take a little time, so take notes. A few good questions to ask as you reach out:

Is my business potentially eligible based on your criteria, such as location, type of business, or ownership?
What are the minimum credit qualifications?
If I qualify, what is the interest rate and payment terms?
How long does the approval and funding process take?
What kind of training or support is available or required?
Do you report account history to consumer or business credit bureaus?

Get your documents ready

During the loan application process, you may be asked for the following:

Business plan (even a simple 1-2 page version)
Past 3 months of business bank statements
Recent tax returns (personal and business if available)
Basic financial projections showing how you’ll use and repay the loan
Government-issued ID and business documentation
Proof of business address and any licenses/permits
That said, if you don’t have a fully formed business plan yet, the microlender may be able to either help you create one or to point you to resources who can help. If financial projections and financial statements are intimidating, they may be able to help there too.

If you have a business idea, but no solid plan for how you want to turn it into reality, you’re probably not ready for a microloan yet. Instead, consider working with an SBA resource partner such as a SCORE mentor or Small Business Development Center.

Know your numbers

Think carefully about how much money you need and how you’ll plan to use it. Be as specific as possible. Instead of saying you need $5,000 for marketing, for example, break down how you plan to use those funds; for example, “$3,000 for paid online advertising, $1,000 for a local PR campaign, and $1,000 for traditional local advertising.”

Again, if you have no idea what these numbers should be, consider working with your own advisors, or get free help from a local SBA resource partner.

Meet with your lender

Microloans often offer more personal experience than online business loans or other small business financing options. Often, you’ll meet with someone who will go over your application, your business, and your financial situation. This high-touch experience means they often make fewer loans than other lenders, and take longer to make decisions.

Of course, individual experiences can vary, depending on the lender and their business model. Edmondson, the founder of Salt and Savour who we mentioned earlier, fully funded one of his microloan crowdfunding campaigns in less than a day.

Review loan terms

If you get an offer, review it carefully before you accept it. Chances are terms will be very competitive as far as small business loans go, but you want to make sure you understand what you’re agreeing to.

In addition to the APR, carefully review the terms. How much are the monthly payments? What happens if your business can’t make that payment? Is there a personal guarantee? (If so, you’ll be responsible for paying back the loan even if your business can’t.) Most of these loans carry little or no prepayment penalty, but be sure to check.

Ask questions about anything you don’t understand. A reputable microlender will take time to explain all terms and conditions.

Complete training

Unlike a traditional loan, you may need to complete training before (or after) your loan is funded. These may include business budgeting or financial management workshops, business plan reviews and/or credit counseling.

If you are required to participate in training, look at it as a bonus not a burden. These programs have been carefully designed to help small business owners succeed.

When to choose a microloan vs. a traditional loan

A microloan may make sense when you need a relatively small amount of capital and conventional financing is difficult to get because your business is young, the loan amount is small, or you don’t have strong credit or revenue.

For example, a startup with less than a year of operating history and a modest amount of capital may want to investigate microloans. CDFIs often lend to startups and businesses that mainstream lenders find difficult to finance. One-third of microloan borrowers in the Urban Institute study had been operating for two years or less.

A traditional bank loan may make more sense if your business needs substantially more capital and has the financial and credit profile to meet a bank’s underwriting requirements. Banks evaluate financial condition, credit information, collateral, personal guarantees, and other factors, and banks routinely make loans far larger than the $50,000 SBA microloan maximum.

For example, an established business with strong credit seeking six figures or expansion may want to seek bank financing or an SBA loan. Similarly, a veterinarian wanting to open their own practice may be able to get a loan easier than someone starting a restaurant without having owned and operated one before.

Neither choice is automatically better. Match the financing to the amount you need, the qualifications you can meet, and the terms your business can afford.

But keep in mind that both types of loans may take a while to get through the application and approval process. If you need smaller amounts of capital fast, you may want to explore a 0% intro APR credit card or other funding options that offer faster approval if you qualify.

How does Nav help you find the right loan?

If you’re starting or growing your own business, understanding both your financing options and your credit — personal and business credit — can help you find financing options tailored to your unique situation.

Nav offers resources to help you establish business credit, as well as to view, monitor, and manage your business credit scores.

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Gerri Detweiler
Education Consultant, Nav
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Gerri Detweiler has spent more than 30 years helping people make sense of credit and financing, with a special focus on helping small business owners. As an Education Consultant for Nav, she guides entrepreneurs in building strong business credit and understanding how it can open doors for growth.
Gerri has answered thousands of credit questions online, written or coauthored six books — including Finance Your Own Business: Get on the Financing Fast Track — and has been interviewed in thousands of media stories as a trusted credit expert. Through her widely syndicated articles, webinars for organizations like SCORE and Small Business Development Centers, as well as educational videos, she makes complex financial topics clear and practical, empowering business owners to take control of their credit and grow healthier companies.
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Reviewed by
Robin Saks Frankel
Managing Editor
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Robin has worked as a personal finance writer, editor, and spokesperson for over a decade. Her work has appeared in national publications including Forbes Advisor, USA TODAY, NerdWallet, Bankrate, the Associated Press, and more. She has appeared on or contributed to The New York Times, Fox News, CBS Radio, ABC Radio, NPR, International Business Times and NBC, ABC, and CBS TV affiliates nationwide.

Robin holds an M.S. in Business and Economic Journalism from Boston University and dual B.A. degrees in Economics and International Relations from Boston University. In addition, she is an accredited CEPF® and holds an ACES certificate in Editing from the Poynter Institute.
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