Many entrepreneurs are looking to the Small Business Administration’s loan programs for relief during the coronavirus crisis. While SBA loans aren’t relevant to all businesses, it is worth taking a look at them to see if you qualify.
Small businesses are the first to feel the shockwaves when a massive event like the coronavirus lockdown takes place.
“It’s an unprecedented situation that we’re all dealing with,” says Eric Goldschein, editor at Fundera, a lending platform that serves small business owners.
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Many entrepreneurs are looking to the Small Business Administration’s loan programs for relief. While SBA loans aren’t relevant to all businesses, it is worth taking a look at them to see if you qualify. SBA-backed loans generally offer very attractive interest rates. (But be warned: the SBA’s Economic Injury Disaster Loans program experienced a data breach in March that exposed the personal information of about 8,000 businesses.)
Here are two SBA programs that may help you.
SBA Disaster Loan Assistance Program
Businesses of any size can apply for up to $2 million for economic damage. The SBA will review your credit and determine your eligibility. Once the SBA sends loan closing documents, it will make an initial disbursement of $25,000 within five days for physical damage. The interest rate cannot exceed 4% per year, according to the SBA.
Typically, disaster loan assistance is focused on a specific region – when, for instance, a hurricane strikes – but in this case, many regions will be included. To find out if your region is currently one of them visit the website for the program.
“For this situation with COVID-19, entire states are being declared disaster areas,” says Goldschein. “We’re probably going to get to the state where every state is declared.”
In addition to the forms the program requires, applicants must submit completed copies of the most recent federal tax returns for their business, a personal financial statement for each principal owning 20% or more of the business and a schedule of liabilities listing all fixed debts.
Applicants may also need to supply the lender with complete copies of the most recent federal tax return for each principal owning 20% or more of the business and each general partner or managing member.
If the year-end tax return has not been filed, they may also need to submit a year-end profit and loss statement and a balance sheet – and a current year-to-date profit and loss statement – to complete their application.
7(a) Small Loan Program
There are other SBA loan programs if you can hold out a little longer to get your money.
The 7(a) small loan program, a popular program for small businesses, provides up to $350,000 in funds, with a turnaround time on the loan application of five to 10 business days. The interest rate cannot exceed the SBA’s maximum.
For loans of less than seven years, the maximum is prime plus 4.25% for those up to $25,000; prime plus 3.25% for loans from $25,001 to $50,000; and prime plus 2.25% for loans over $50,000.
For loans of seven years or longer, the SBA’s maximum is prime plus 4.75% for loans of up to $25,000; prime plus 3.75% for loans of $25,001 to $50,000 and prime plus 2.75% for loans over $50,000.
There is no prepayment penalty, so if you’re not sure you will need the funds but want to be on the safe side, this could be a good option.
The COVID-19 panic is likely to affect businesses of all kinds for months to come. If your success relies on physical interactions with customers, you may be among the hardest hit. As Americans hunker down in their homes, an SBA disaster loan may hold your company over until daily life returns to normal.