The program became operational in 1992. The SBA's Microloan lending program was authorized initially as a five-year demonstration project. It was made permanent, subject to reauthorization, in 1997 ( P.L. 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, obtain loans that enable them to create jobs. Job creation and preservation, always a congressional interest, has taken on increased importance given continuing concerns about job growth. This report describes the Microloan program's eligibility standards and operating requirements for lenders and borrowers and examines the arguments presented by the program's critics and advocates. 115-141 , the Consolidated Appropriations Act, 2018, and P.L. 115-141 , among other provisions, relaxed requirements on Microloan intermediaries that prohibited them from spending more than 25% of their technical assistance grant funds on prospective borrowers and more than 25% of those grant funds on contracts with third parties to provide that technical assistance. The act increased those percentages to 50% (originally in H.R. Also, P.L. 2056 , the Microloan Modernization Act of 2017, and S. 526 , its companion bill in the Senate). Instead, it provides direct loans to qualified nonprofit intermediary Microloan lenders who, in turn, provide "microloans" of up to $50,000 to small business owners, entrepreneurs, and nonprofit child care centers. In FY2018, the average interest rate charged was 7.6%. Microloan intermediaries provided 5,459 loans to small businesses totaling $76.8 million. Congressional Issues

Critics of the SBA's Microloan program argue that it is duplicative of other available programs, expensive relative to alternative programs, 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 or even the SBA's 7(a) loan program" and "has provided an important source of capital for low-income women business owners and minority borrowers." 111-240 , the Small Business Jobs Act of 2010, increased the Microloan program's loan limit for borrowers from $35,000 to $50,000, and increased the loan limit for Microloan intermediaries after their first year of participation in the program from $3.5 million to $5 million. S. 2850 , the Microloan Program Modernization Act of 2016, would have increased the Microloan program's aggregate loan limit for intermediaries after their first year of participation in the program from $5 million to $6 million; eliminated the requirements that intermediaries spend no more than 25% of Microloan technical assistance grant funds on technical assistance to prospective borrowers and no more than 25% of those funds on third-party contracts for technical assistance; required the SBA to study and report on the operations of a representative sample of Microloan intermediaries and other intermediaries and make recommendations on how to reduce costs associated with intermediaries' participation in the program and to increase intermediary participation in the program; and required the Government Accountability Office to study and report on the SBA's oversight of the program, SBA's processes to ensure intermediary compliance with program rules and regulations, and the program's overall performance. 115-232 , the John S. McCain National Defense Authorization Act for Fiscal Year 2019, among other provisions, increased the Microloan program's aggregate loan limit for intermediaries after their first year of participation in the program from $5 million to $6 million.
The Small Business Administration's (SBA's) Microloan program provides direct loans to qualified nonprofit intermediary lenders who, in turn, provide "microloans" of up to $50,000 to small businesses and nonprofit child care centers. It also provides marketing, management, and technical assistance to microloan borrowers and potential borrowers. Authorized in 1991 as a five-year demonstration project, it became operational in 1992, and was made permanent, subject to reauthorization, in 1997.
The Microloan program is designed to assist women, low-income, veteran, and minority entrepreneurs and small business owners by providing them small-scale loans for working capital or the acquisition of materials, supplies, or equipment. In FY2018, Microloan intermediaries provided 5,459 microloans totaling $76.8 million. The average Microloan was $14,071 and had a 7.6% 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 assists 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 continuing concerns about job growth during the current economic recovery.
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 advocates. It then discusses P.L. 111-240, the Small Business Jobs Act of 2010, which increased the Microloan program's loan limit for borrowers from $35,000 to $50,000, and the aggregate loan limit for intermediaries after their first year of participation in the program from $3.5 million to $5 million.
It also discusses P.L. 115-141, the Consolidated Appropriations Act, 2018, which, among other provisions, relaxed requirements on Microloan intermediaries that prohibited them from spending more than 25% of their technical assistance grant funds on prospective borrowers and more than 25% of those grant funds on contracts with third parties to provide that technical assistance. The act increased those percentages to 50% (originally in H.R. 2056, the Microloan Modernization Act of 2017, and S. 526, its companion bill in the Senate). In addition, P.L. 115-232, the John S. McCain National Defense Authorization Act for Fiscal Year 2019, among other provisions, increased the Microloan program's aggregate loan limit for intermediaries after their first year of participation in the program from $5 million to $6 million.