Whether you’re seeking financial help for your small business in response to the recent coronavirus (COVID-19) outbreak or simply wondering how to obtain financing to expand, a loan from the Small Business Administration (SBA) may be just the solution you need.
SBA low-interest long-term loans are a viable option for business owners suffering substantial disaster-related physical or economic damage or who want to grow their business and can’t obtain other non-government financing.
A new form of COVID-19 disaster assistance loan for businesses under the Paycheck Protection Program (PPP) is now available.
SBA disaster assistance loans are direct loans with funds provided by the government.
A forgivable $10,000 advance on your disaster assistance loan is available within 3 days when you apply for COVID-19 disaster assistance.
SBA business expansion loans are guaranteed loans with funds coming from approved private lenders.
SBA Paycheck Protection Program (PPP)
One of several new and modified programs created by the passage of the CARES Act on March 27, 2020, the Paycheck Protection Program provides forgivable SBA emergency 7(a) loans of up to $10 million to small businesses with 500 or fewer employees including sole proprietorships, independent contractors, and self-employed persons affected by COVID-19.1
Updates to the PPP loan program arrived in the form of new legislation signed into law on June 5, 2020. The new law, called the PPP Flexibility Act of 2020 extends the amount of time borrowers have to spend loan proceeds and provides several additional improvements over the original PPP program.
Following passage of the PPP Flexibility Act of 2020, your loan will now be partially or fully forgiven if at least 60% (formerly 75%) of the amount forgiven is used for payroll and 40% (formerly 25%) of the amount forgiven is used for mortgage interest, rent, and utilities.
Instead of a 6-month payment deferral, your loan will be deferred until the SBA remits the forgiven amount to your lender. If you don’t seek forgiveness, your payments are deferred for 10 months from the end of the covered period.
As before, no collateral is required and the loan will not carry any fees. However, instead of a two-year term, you now have five years to pay off your loan at the same 1% fixed rate as before.2 3
But what happens to the loan if laid-off employees receiving that extra $600/week on unemployment insurance refuse to return to work when they are offered their jobs back under the PPP? The PPP Flexibility Act of 2020 confirms previous guidance that if you make a good-faith offer to rehire the employee (same hours, same wages) and document it, you can exclude that employee from your count for purposes of forgiveness. Further, the Flexibility Act adds two more exclusion exceptions:
if you are unable to retain or rehire an employee due to COVID-19 restrictions; and or
if you cannot find and hire a suitable replacement for a furloughed employee due to lack of qualifications.4
Where to Apply for the SBA Paycheck Protection Program (PPP)
Apply for this loan through any of about 800 existing SBA 7(a) lenders or through any participating federally insured depository institution, federally insured credit union, and Farm Credit System institution. Start by consulting with your local lender to see if it is participating. Processing of applications began April 3, 2020.
According to recent joint statements from the SBA and office of the Treasury Secretary, changes made by the PPP Flexibility Act of 2020 have been fully incorporated in revised downloadable loan and loan forgiveness applications available on the SBA website.56
The revised PPP loan application form, which became available June 12, 2020, incorporates all changes announced with passage of the PPP Flexibility Act of 2020 and is 4 pages long. Then, on June 17, 2020, the SBA posted a revised, scaled-down (5 pages vs. 11) Paycheck Protection Program (PPP) loan forgiveness application as well as a new 3-page EZ version of the forgiveness application for self-employed applicants who meet certain conditions.
PPP Loan Forgiveness Application Form 3508EZ (PDF)
PPP Full Loan Forgiveness Application Revised June 16, 2020 (PDF)
$10 Million vs. $2 Million
The maximum SBA Paycheck Protection Program (PPP) loan is $10 million, up considerably from the original (and still available) $2 million Disaster Assistance Loan.
Do not use any other road to apply for a PPP loan; scammers are already going after small business owners, reports the Federal Trade Commission, which filed a case against one such company on April 17.7 Only apply by first going to the SBA website. And know that the SBA will never ask for Social Security numbers, or bank account or credit card numbers up front, the FTC cautioned.
Businesses that decide, as Shake Shack did, that it was a mistake to apply for and receive a PPP loan, had until May 14, 2020, to return the money and “be deemed by SBA to have made the required certification in good faith,” avoiding possible government scrutiny and negative repercussions. 3
Economic Injury Disaster Advance Loan
Small business owners in all 50 states, Washington D.C., and U.S. territories are eligible to apply for an Economic Injury Disaster Loan (EIDL) advance of up to $10,000 as part of the application process for SBA Coronavirus Disaster Assistance. The loan advance will be available within days of a successful EIDL and does not have to be repaid.8
SBA Economic Injury Disaster Loan (EIDL) Assistance
SBA Coronavirus Disaster assistance loans are designed to help businesses recover from the economic effects of COVID-19. Disaster assistance loans of up to $2 million with maximum terms of 30 years are available. Small business owners in all 50 states; Washington, D.C.; and U.S. territories are eligible to apply.
Loans can be used to pay fixed debts, payroll, accounts payable, and other bills that can’t be paid due to the impact of COVID-19. The interest rate for small businesses is 3.75%. Non-profits pay just 2.75%.8
Where to Apply for SBA Coronavirus Disaster Assistance
A streamlined process for applying for SBA Coronavirus Disaster Assistance (including the $10,000 forgiveable loan advance) is posted on the SBA Disaster Assistance web page.
EIDL loans and loan advances are once again available to all eligible applicants as of June 15, 2020. Previously, EIDL applications were frozen, then opened up only to agricultural businesses.9
SBA Express Bridge Loan (EBL)
If you already have a business relationship with an SBA Express Lender a new Express Bridge Loan Pilot Program offers quick turnaround on up to $25,000 to help bridge the gap until your SBA Economic Injury Disaster Loan (EIDL) is approved. Bridge funds can be paid in full or in part with proceeds from your EIDL once it is approved.10 11
Where to Apply for an SBA Express Bridge Loan
Consult the Express Bridge Loan Pilot Program Guide or contact your local SBA district office for details.10
SBA 7(a) Loan Debt Relief
A new SBA Debt Relief program will pay principal, interest, and fees for six months on new 7(a), 504, and microloans made between Mar. 27 and Sept. 27, 2020. The program will also pay principal, interest, and fees for six months on existing 7(a), 504, and microloans beginning with the first payment due after Mar. 27, 2020.12
Where to Apply for 7(a) Loan Debt Relief
This relief is automatic and does not require an application. Check with your lender for more information or if you have questions.
SBA Deferral on Existing Home and Business Loans
If you currently have an SBA Serviced Disaster (Home and Business) Loan that was in “regular servicing” on Mar. 1, 2020, the SBA is providing automatic deferral on your loan through Dec. 31, 2020. Note the following:
Interest will continue to accrue on your loan during the deferral period.
1201 monthly notices will still be mailed but will show no payment due.
Pre Authorized Debit (PAD) payments will not automatically be cancelled. You must contact your servicer to do that.
If you wish to continue making payments you may. No contact is necessary.
After the deferral period you must resume payments and set up PAD if you cancelled it earlier.12
Where to Apply for Existing Disaster Loan Deferral
Deferral is automatic. You do not need to apply. After the deferral period you do not need to contact SBA before resuming payments.12
SBA Business Expansion Loans
The disaster-related loans referenced above are made with funds appropriated or guaranteed by Congress. SBA business expansion loans are commercial loans, structured according to SBA requirements with an SBA guaranty. Small business owners and borrowers who have access to other financing with reasonable terms are not eligible for this type of SBA-guaranteed loan. Guaranteed loan programs from the SBA include the following:
7(a) Loan Program
This is the SBA’s most common loan program and provides financial help for businesses with special requirements, such as franchises, farms and agricultural businesses, and fishing vessels. There is no minimum loan amount but the maximum is $5 million. Note that emergency SBA 7(a) loans available under PPP have different requirements from those used for business expansion.
There are nine types of 7(a) loans, each with its own maximum loan amount, SBA guarantee, negotiated interest rate and other factors all of which are spelled out on the 7(a) loan program web page.13
This program provides small, short-term loans up to $50,000 to small businesses and certain types of not-for-profit childcare centers. Loans can be used to buy new equipment, supplies, furniture, or to provide working capital. Loans are provided by microlenders, with each having its own lending and credit requirements.14
This loan program provides financing for businesses to purchase real estate, major fixed assets, and equipment, or make improvements like landscaping. This program can also provide funding for renovation