Microcredit for unemployed people in the United States: who lends and on what terms

What counts as a microloan in the US

In American usage, a microloan is a small business loan, not a general cash advance. It is meant for someone starting or growing a tiny enterprise: a food stall, a cleaning round, a mobile repair service, a childcare setting.

That distinction matters if you are unemployed and only need to pay bills. Microlenders will ask what the money will buy and how it will produce income, so a simple plan on one page is more useful than a long document.

The federal route: SBA Microloan intermediaries

The Small Business Administration does not lend directly. It funds designated intermediary lenders, which are nonprofit, community-based organisations, and these administer the programme, make all credit decisions and set the terms.

The SBA says loans go up to $50,000, the average is about $13,000, the maximum term is seven years and rates generally range from 8% to 13%, depending on the lender. Funds can be used for working capital, inventory, supplies, furniture, fixtures, machinery and equipment, but not to pay off existing debts or buy real estate. Check the SBA page and your local intermediary for current terms.

Kiva: zero-interest loans through crowdfunding

Kiva's U.S. programme offers 0% interest loans to small business owners, with no fees, no collateral and no minimum credit score. Amounts range from $1,000 to $15,000, and repayment runs 12 to 36 months, beginning a month after funding.

The process is unusual. You first invite friends and family to lend in a private fundraising period, then the loan goes to public crowdfunding for up to 35 days. Applicants must be at least 18, have no recent violent or financial criminal convictions, foreclosure or bankruptcy, and have a PayPal account; some business types and states are excluded.

• Best for: people who have a supportive network and a clear small project
• Less suitable: urgent needs, because funding takes weeks and is not guaranteed

Community lenders that build credit as well

Justine PETERSEN, a nonprofit in St. Louis, Missouri, lists Credit Building, Small Business and Housing programmes on its site. It does not publish amounts or eligibility on its home page, so you would call or use the programme pages for details.

Many cities have similar CDFIs, community development financial institutions, whose mission is lending to people who banks turn away. Ask them whether they also provide business coaching, since advice on pricing and bookkeeping can matter as much as the cash.

Preparing an application that gets read

Lenders of this size look at character and plan as well as numbers. Write down what you will sell, to whom, at what price, and what you will earn after costs in a typical month.

Gather your ID, tax identification number, recent bank statements, a short work history, any quotes for equipment and, if available, a few letters from customers. Be ready to explain the gap in employment honestly; it is rarely the obstacle you fear if the plan is credible.

Comparing cost and risk

A 0% loan is not the same as a free loan: you still repay the full amount, and missing payments can damage relationships with friends and family who funded you. A bank-style microloan at 8% to 13% costs more but may suit someone with no network.

Look at the annual percentage rate, fees taken from the proceeds, personal guarantees and what happens if sales fall. Keep your repayment below what you can pay even in a slow month, and keep another income source, even part-time, while the business grows.

Warning signs

Be wary of anyone who offers a 'microloan' by text, asks for a processing fee first, or insists you pay in gift cards. Genuine lenders disclose terms in writing and do not ask for money to release funds.

Merchant cash advances marketed to new owners can be extremely costly because repayment is taken daily from sales. Ask for the total repayable amount as a figure, not just a factor rate.