What is a Microloan?
The Microloan Program provides small, short-term loans to small business concerns and certain types of not-for-profit child-care centers. The SBA makes funds available to specially designated intermediary lenders, which are nonprofit community-based organizations with experience in lending as well as management and technical assistance. These intermediaries make loans to eligible borrowers. The maximum loan amount is $50,000, but the average microloan is about $13,000.
What is Technical Assistance?
If you apply for microloan financing, you may be required to fulfill training and/or planning requirements before your loan application is considered. This business training can be helpful to you as you launch or expand your small business.
How do I apply for a loan?
To apply for a loan contact the PCDFI office closest to you. It is best to attend a Informational Workshop. However, if you are unable to attend one of the workshop sessions you may still apply for a loan by downloading the application from our website. The workshop is recommended as a first step to ensure that your business is in a position to obtain financing, if that is your ultimate goal.
How do I apply for a loan if I live in rural communities?
It’s simple! Simply, contact the PCDFI office closest to you. We will send you a complete loan application package that includes directions, or you may download the application from our website and send the requested documentation in with the completed application via email, fax, or hand delivery. Our helpful staff will also explain our loan procedure to you over the telephone or via email.
How long does the loan process take?
The time of the process varies based on the scope of application. If the business is a start-up you would go through an initial assessment process before you can submit a loan application. Existing business owners would set up a meeting with a Business Relationship Officer to discuss the loan application. You then go through an internal review process and if that process is favorable you have the possibility to go to loan review committee. Typically you will receive feedback from PCDFI staff as to the status of your application. PCDFI staff is happy to assist you in presenting a complete loan application. Most delays occur due to incomplete loan applications. If your application is complete and the process is not held up for missing documents the processing time is between 45-60 days.
What if I have bad credit?
PCDFI has the requirement of at least a 600 on your credit report. No major derogatory reports, defaults, insolvencies such as: bankruptcy, repossession, or foreclosures in the past three years after formal discharge. No existing liens, outstanding collections, or judgments.
When considering credit, PCDFI looks at the circumstances behind these credit issues such as medical or divorce. Repaired and rebuilt credit is also considered. PCDFI looks favorably on efforts to rectify past credit issues. PCDFI uses your credit report to gauge how you have handled past debts. If you have credit issues, you should submit a detailed personal statement explaining circumstances and action taken with your loan application.
What collateral do I need?
Appropriate collateral depends on many factors most especially the size of your loan request. PCDFI will require a personal guarantee, business assets as collateral. It is common to also pledge personal assets and/or have a co-applicant to strengthen a loan application. (Examples of collateral include:home or property, vehicles, equipment, inventory and accounts receivable).
Are you a government agency?
No. PCDFI is a private nonprofit organization. We are certified by the US Department of Treasury as a Community Development Financial Institution and Community Development Entity. We are also a US Small Business Administration Intermediary Lender.
What can I use the money for?
Microloans may be used for the following purposes:
- Working capital
- The purchase of inventory or supplies
- The purchase of furniture or fixtures
- The purchase of machinery or equipment.
Loan funds cannot be used for:
- Personal expenses
- Delinquent taxes
What does it take to get a loan?
In general a successful loan package includes a good business idea and plan and strong business management skills. When considering a loan application, PCDFI uses the ’5 C’s of Credit’ as a rule of thumb.
- Capacity – The capacity of the business and yourself to repay the loan.
- Collateral – Is the collateral you have offered enough to repay the loan if all else fails?
- Conditions – The conditions in which your business must succeed. Conditions include but are not limited to: the economy, your competition, and the market.
- Credit – Your credit history and how you have repaid previous financiers.
- Character – Your personal characteristics and your ability to successfully operate the business.
The strengths and weaknesses of each ‘C’ are weighed.
What is a business plan?
A business plan is the ‘roadmap’ for your business. A good business plan is your best business management tool and is also required in order to apply for a loan. There are many local resources and web sites that discuss business plans. See our Resources page for more information.
What if I need more money than PCDFI can lend?
PCDFI often works with banks and other community lenders. PCDFI can ‘participate’ in multiparty financing. If your needs are greater than $50,000 it is best to contact the PCDFI office closest to you to discuss other options. You should also contact your local Small Business Administration office.
Am I required to take PCDFI’s classes to qualify for a loan?
No. PCDFI’s classes are recommended but NOT required to apply for a loan.
What kinds of businesses has PCDFI helped?
Typical businesses are for-profit businesses employing 2 or more individuals. Industries such as:
- Professional services
PCDFI cannot lend:
Nonprofit organizations – nonprofit child care center ARE eligible.
For gaming purposes
Businesses considered a “sin” industry (i.e. liquor stores, “Hard” Bars, Gamming etc.)
What are the Terms, Interest Rates, and Fees?
Loan terms vary according to:
- The size of the loan
- The planned use of funds
- The requirements of the intermediary lender
- The needs of the small business borrower
The maximum term allowed for a microloan is five years. Interest rates vary, depending on the lender and costs to the intermediary from the U.S. Treasury and investors.