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Tuesday, October 23, 2012

Small Business Administration Microloan Program

Robert Jay Dilger
Senior Specialist in American National Government

The Small Business Administration’s (SBA’s) Microloan program provides direct loans to qualified non-profit intermediary Microloan lenders who, in turn, provide “microloans” of up to $50,000 to small business owners, entrepreneurs, and non-profit child care centers. It also provides marketing, management, and technical assistance to Microloan borrowers and potential borrowers. The program was authorized in 1991 as a five-year demonstration project and became operational in 1992. It was made permanent, subject to reauthorization, in 1997.

The SBA’s Microloan program is designed to assist women, low-income, veteran, and minority entrepreneurs and small business owners and other individuals possessing the capability to operate successful business concerns by providing them small-scale loans for working capital or the acquisition of materials, supplies, or equipment.

In FY2012, Microloan intermediaries provided 3,973 Microloans amounting to $44.7 million. The average Microloan was $11,254 and had a 8.18% interest rate.

Critics of the SBA’s Microloan program argue that it is expensive relative to alternative programs, duplicative of the SBA’s 7(a) loan guaranty program, and subject to administrative shortfalls. The program’s advocates argue that it provides assistance that reaches many who otherwise would not be served by the private sector and is an important source of capital and training assistance for low-income women and minority business owners.

Congressional interest in the Microloan program has increased in recent years, primarily because microloans are viewed as a means to assist very small businesses, especially women- and minority-owned startups, to get loans that enable them to create and retain jobs. Job creation, always a congressional interest, has taken on increased importance given the nation’s current economic difficulties.

This report opens with a discussion of the rationale provided for having a Microloan program, describes the program’s eligibility standards and operating requirements for lenders and borrowers, and examines the arguments presented by the program’s critics and by its advocates. It concludes with an examination of changes to the program authorized by P.L. 111-240, the Small Business Jobs Act of 2010.

The Small Business Jobs Act increased the Microloan program’s loan limit for borrowers from $35,000 to $50,000, and for intermediaries after their first year of participation in the program from $3.5 million to $5 million. It also authorized the SBA to waive, in whole or in part through FY2012, the non-federal share requirement for loans to the Microloan program’s intermediaries and for grants made to Microloan intermediaries for small business marketing, management, and technical assistance for up to a fiscal year.

Date of Report: October 16, 2012
Number of Pages: 21
Order Number: R41057
Price: $29.95

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