We get it. The news regarding how the recent coronavirus pandemic is affecting small businesses is alarming. With weeks or even months ahead of us before we see nonessential services return, companies are making hard choices to stay afloat.
Before you panic, know that the government and private lenders at every level are listening. They’ve rapidly expanded the offerings available to businesses of every size—even you!
On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) which provides even more financial relief for businesses impacted by COVID-19. One major part of the act is the Paycheck Protection Program, which modifies and expands several SBA loan requirements and borrowing limits.
Now, let’s talk loan options. If you’ve been up at night crunching the numbers, rest assured there are options. See what loans might work for you in this time of uncertainty.
Just keep in mind that information about the loan programs under the CARES Act is rapidly changing and the details can get particular. We’ll do our best to update this post with changes, but if you decide to go this route, make sure you get additional details about the loan.
Paycheck Protection Program
The Paycheck Protection Program modifies and expands the traditional SBA 7(a) loan. Businesses that were operational on February 15, 2020, and who have less than 500 employees are eligible for the program under the CARES Act. This includes sole proprietors, independent contracts, and eligible self-employed people.
You can borrow the lesser of $10 million or 2.5 times your average monthly payroll, mortgage, rent, and utility costs from the previous year.
Funds can be used for:
- Payroll costs, including paying employees, paying vacation, medical, or sick pay, severance pay, and payments required for employee benefits like health insurance premiums and retirement benefits
- Mortgage interest, rent, and lease payments
- Interest on debt obligations incurred before February 20, 2020
Funds can’t be used to pay employees, independent contractors, and sole proprietors more than an annual salary of $100,000.
Under the program, you don’t have to sign a personal guarantee or provide collateral. Payments will be deferred for at least 6 months (but no more than a year) and the interest rate is capped at 4%.
Businesses are eligible for full or partial loan forgiveness as long as they are employers who continue to pay their employees their regular wages for at least 8 weeks after the origination of the loan. If you meet those requirements then the amount you spend on payroll costs (except employee compensation above $100,000 annually), mortgage interest, rent payments, and utilities will be forgiven.
Learn more about how you can apply here.
SBA Economic Injury Disaster Loan assistance program
The most buzzed-about program in the media today, this is a standing program available for any business owner located in an area identified as being affected by a disaster. Guidelines for qualifying areas have been loosened, however, making it easier than ever for all small-business owners to apply.
The SBA has determined that business owners in all 50 states meet the disaster criteria. Loan amounts of up to $2 million can be used for fixed debts, accounts payable, payroll, and other business expenses. The interest rate is 3.75% for businesses and 2.75% for nonprofits.
Under the CARES Act, borrowers no longer need to provide a personal guarantee for loans up to $200,000 or be unable to obtain credit from another lender. The Act also gives the SBA the ability to approve applicants for small loans based on credit score alone.
The most notable change under the CARES Act is that borrowers can request a $10,000 emergency cash advance within three days of submitting their application. The advance must be used for maintaining payroll, providing paid sick leave to employees, paying rent or mortgage payments, and paying utility payments.
If the loan application is denied, borrowers don’t need to repay the cash advance if they meet these conditions.
Affected business owners can apply before December 21, 2020, here.
SBA Express loan program
For those who can’t wait for the often-lengthy application and approval process of the traditional 7(a) loan, an Express loan may be a better fit. The program gives businesses an application decision within 36 hours of a completed submission.
Typically, loan amounts are much smaller, up to $350,000. Borrowers have up to seven years to repay, with an option to revolve. Use the money in the same way you would a standard 7(a) program loan.
Learn more about the SBA Express loan and how to apply here.
SBA 504 loan program
This loan is for the purchase or refinancing of fixed assets (such as property, machinery, construction, or renovation) only. Loan amounts, therefore, are much higher—up to $5.5 million per loan. Some manufacturing or energy-efficient purchases may qualify for more than one loan at a time.
The program works a bit differently than other loans, however:
- A 10% borrower contribution is required for approval. (Under some circumstances, this amount may be increased to no more than 20%.)
- The remaining 90% of the loan is split between a third-party lender through a conventional first mortgage of 50% and a nonprofit Certified Development Company (CDC) in your community through a second mortgage of 40%. The CDC will coordinate the financing package between everyone.
Each loan has a low fixed rate and must be paid back within 10 or 20 years.
Learn more about the SBA 504 loan program and how to apply here.
SBA Microloan program
Most of the SBA loan programs we’ve already mentioned start at very large amounts and aren’t suitable for smaller businesses. What if you just need a quick injection of cash to use for paying employees or getting your next supply order?
The microloan program serves borrowers with more modest needs. Loans range from a few thousand dollars to $50,000 and can be used for payroll, supplies, equipment, and other working capital needs (excluding paying existing debts and purchasing real estate.)
Find a lender participating in the program through the SBA’s list of lenders.
SBA Community Advantage loan program
This pilot program gives loans of up to $250,000 to businesses in underserved markets. Proceeds can be spent in the same way as 7(a) loan funds, for items such as renovation, purchase of equipment, working capital, and refinancing of debt. It’s designed to support mission-based lenders in their goal to help certain disadvantaged small businesses get access to funds when they can’t get money elsewhere.
Learn more about the Community Advantage loan here.
A note on all SBA loans: In addition to providing your financial documentation, applicants must be:
- A for-profit U.S. business
- Legally registered
- Invested in their business through time, money, or other equity
- Unable to get funds from any other financial lender
These are the minimum requirements for loans. Some groups, such as veterans or Native Americans, may find they qualify for some additional SBA programs not listed here.
Kiva small-business loans
This online business micro-lending platform relies on generous backers to provide the money for those needing funds. Kiva recently announced that more applicants would be eligible for 0% financing with no fees. Loan limits are currently $15,000 (up from $10,000).
New borrowers are also able to receive a six-month grace period as they navigate the financial difficulties of the coronavirus outbreak.
Learn more about Kiva and its mission, or apply here.
State-based lending programs
Many states have allocated funds to give local businesses some relief from economic difficulties. While the list is being updated all the time, currently, the following states have set aside money with the purpose of assisting businesses quickly.
Some are specifically geared toward workers in the gig economy or businesses that employ fewer than 10 workers:
- Arkansas Quick Action Loan Program
- California’s City of LA Small Business Emergency Microloan Program and San Francisco’s COVID-19 Small Business Resiliency Fund
- Delaware Hospitality Emergency Loan Program
- Florida Small Business Emergency Bridge Loan Program
- New Orleans Business Alliance’s relief fund for gig-economy workers
- Massachusetts Small Business Recovery Loan Fund
- New Mexico COVID-19 Business Loan Guarantee Program
- NYC Small Business Continuity Loan Fund
- Pennsylvania COVID-19 Small Business Relief Fund
Resources for states and municipalities are updated daily. For the most recent announcements for programs in your area, visit your state’s department of commerce or economic development website.
Why you don’t want to wait
Even if your business isn’t suffering yet, the outlook from government officials and economic experts suggest that a slump could last some time. SBA offices, for example, anticipate a rush for applications and have recommended that business owners who suspect they may need funding start the process now.
With new flexible terms available for businesses of all sizes (even businesses-of-one), the time to seek out loan assistance is now—not later.
Linsey Knerl is a Midwest-based author, public speaker, and member of the ASJA. She has a passion for helping small business owners do more with their resources via the latest tech and finance solutions.