The Microloan Program assists women, low income individuals, minority entrepreneurs, and other small businesses which need small amounts of financial assistance. Under this program, SBA makes direct and guaranteed loans to Intermediaries (as defined below) who use the proceeds to make loans to eligible borrowers. SBA may also make grants under the program to Intermediaries and other qualified nonprofit entities to be used for marketing, management, and technical assistance to the program's target population.
Applying to become an Intermediary
Organizations interested in becoming Intermediaries should contact SBA for information on the application process. Applications should contain supporting information describing:
(1) The types of businesses assisted in the past and those the applicant intends to assist with Microloans;
(2) The average size of the loans made in the past and the average size of intended Microloans;
(3) The extent to which the applicant will make Microloans to small businesses in rural areas;
(4) The geographic area in which the applicant intends to operate, including a description of the economic and demographic conditions existing in the intended area of operations;
(5) The availability and cost of obtaining credit for small businesses in the area;
(6) The applicant's experience and qualifications in providing marketing, management, and technical assistance to small businesses; and
(7) Any plan to use other technical assistance resources (such as counselors from the Service Corps of Retired Executives) to help Microloan borrowers.
Eligibility Criteria to become an Intermediary
To be eligible to be an Intermediary, an organization must:
(1) Have made and serviced short-term fixed rate loans of not more than $35,000 to newly established or growing small businesses for at least one year: and
(2) Have at least one year of experience providing technical assistance to its borrowers.
An Intermediary may not operate in more than one state unless the AA/FA determines that it would be in the best interests of the small business community for it to operate across state lines
What are the terms and conditions of an SBA loan to an Intermediary
An Intermediary may not borrow more than $750,000 in the first year of participation in the program. In later years, the Intermediary's obligation to SBA may not exceed an aggregate of $3.5 million, subject to statutory limitations on the total amount of funds available per state.
During the first year of the loan, an Intermediary is not required to make any payments, but interest accrues from the date that SBA disburses the loan proceeds to the Intermediary. After that, SBA will determine the periodic payments. The loan must be repaid within 10 years.
The interest rate is equal to the rate applicable to five-year obligations of the United States Treasury, adjusted to the nearest one-eighth percent, less 1.25 percent. However, the interest rate for Specialized Intermediaries is equal to the rate applicable to five-year obligations of the United States Treasury, adjusted to the nearest one-eighth percent, less two percent.
As security for repayment of the SBA loan, an Intermediary must pledge to SBA a first lien position in the Microloan Revolving Fund (MRF) (described below), Loan Loss Reserve Fund (described below), and all notes receivable from Microloans.
SBA does not charge Intermediaries any fees for loans under this Program. An Intermediary may, however, pay minimal closing costs to third parties, such as filing and recording fees.
What is the Microloan Revolving Fund
The Microloan Revolving Fund (``MRF'') is an interest-bearing Deposit Account into which an Intermediary must deposit the proceeds from SBA loans, its contributions from non-Federal sources, and payments from its Microloan borrowers. An Intermediary may only withdraw from this account the money needed to establish the Loan Loss Reserve Fund (Sec. 120.710), proceeds for each Microloan it makes, and any payments to be made to SBA.
What is the Loan Loss Reserve Fund
(a) General. The Loan Loss Reserve Fund (``LLRF'') is an interest-bearing Deposit Account which an Intermediary must establish to pay any shortage in the MRF caused by delinquencies or losses on Microloans. An Intermediary must maintain the LLRF until it has repaid all obligations it owes SBA.
(b) Level of Loan Loss Reserve Fund. Until it is in the Microloan program for at least five years, an Intermediary must maintain a balance on deposit in its LLRF equal to 15 percent of the outstanding balance of the notes receivable owed to it by its Microloan borrowers (``Portfolio'').
What conditions apply to loans by Intermediaries to Microloan Borrowers
An intermediary may make Microloans to any small business eligible to receive financial assistance under this part. A borrower may also use Microloan proceeds to establish a nonprofit child care business. Proceeds from Microloans may be used only for working capital and acquisition of materials, supplies, furniture, fixtures, and equipment. SBA does not review Microloans for creditworthiness.
(b) Generally, Intermediaries should not make a Microloan of more than $10,000 to any borrower. An Intermediary may not make a Microloan of more than $20,000 unless the borrower demonstrates that it is unable to obtain credit elsewhere at comparable interest rates and that it has good prospects for success. An Intermediary may not make a Microloan of more than $35,000, and no borrower may owe an Intermediary more than $35,000 at any one time. Each Microloan must be repaid within six years.
(c) The maximum interest rate that can be charged a Microloan borrower is:
(1) On loans of more than $10,000, the interest rate charged on the SBA loan to the Intermediary, plus 7.75 percentage points; and
(2) On loans of $10,000 or less, the interest rate charged on the SBA loan to the Intermediary, plus 8.5 percentage points.
What is the Intermediary's financial contribution
The Intermediary must contribute from non-Federal sources an amount equal to 15 percent of any loan that it receives from SBA. The contribution may not be borrowed. For purposes of this program, Community Development Block Grants are considered non-Federal sources.
How does an Intermediary get a grant to assist Microloan borrowers
An Intermediary is eligible to receive grant funding from SBA of not more than 25 percent of the outstanding balance of all SBA loans to the Intermediary. The Intermediary must contribute, solely from non-Federal sources, an amount equal to 25 percent of the grant. Contributions may be made in cash or in kind.
An Intermediary may not borrow its contribution. It may only use grant funds to provide Microloan borrowers with marketing, management, and technical assistance, except that:
(1) Up to 25 percent of the grant funds may be used to provide information and technical assistance to prospective Microloan borrowers; and
(2) Grant monies may be used to attend training required by SBA. Intermediaries may not enter into third party contracts for the provision of technical assistance to program clients.
Intermediaries which make at least 50 percent of their loans to small businesses located in or owned by residents of Economically Distressed Areas are not subject to the contribution requirement in the paragraph above.
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