The pandemic has forced us to face many challenges. One area of our lives that’s hardest hit is our businesses. Many small businesses have closed down and others are on the brink.
If you are a small business owner going through tough financial times, a loan is probably one of the solutions you are considering.
Affordable loans such as SBA’s Economic Injury Disaster Loans (EIDL), and Paycheck Protection Program (PPP) loans can help. Through the SBA, the government is helping small businesses deal with Covid-related challenges.
While SBA loans existed before the Covid crisis, the PPP and EIDL loans were created by the government to specifically help small businesses deal with economic challenges arising from the pandemic.
In this article, we give you information on EIDL, PPP, and SBA loans that will help you to pick the right loan to apply for your business.
Let’s start with SBA loans.
What are SBA loans?
SBA loans are provided to small businesses through approved Small Business Administration lenders. They are 3 types of SBA loans;
- SBA 7(a) loans;
- 504 loans; and,
- Microloans.
- SBA 7 (a) loans
You can use SBA 7 (a) loans to refinance business debt, repair your business premises, or purchase supplies and equipment. You can access nine types of loans through SBA 7 (a) loans.
These are;
- Standard 7 (a) loans
- 7(a) small loans
- SBA express loans
- Export express loans
- Export working capital
- International trade loans
- Veteran Advantage loans
- Preferred lenders loans; and,
- CAPLines loans
Each type of loan has its own limit and application requirements, with most of them allowing entrepreneurs to access as much as $5 million to be repaid in 10 years.
Although the SBA does not lend money directly to businesses, it facilitates them by guaranteeing 75% or 85% of them, depending on the amount borrowed.
The SBA also limits the fees and caps interest rates making it easier for business people to qualify and payback.
To apply for an SBA 7(a) loan, you need;
- Financial documents showing your business income
- Personal financial statements to prove your creditworthiness
- Business documents such as a license to prove its existence and where you operate, among other requirements.
While every case is unique, SBA 7 (a) loans usually have a 5 -10 business days turnaround time. However, if you need funds in a hurry, you can access the express loans in 36 hours.
2. SBA 504 loans
SBA 504 loans are accessible through Certified Development Companies (CDCs), which are SBA partners. CDCs promote community economic development by regulating non-profit organizations.
If you want to apply for an SBA 504 loan, you must operate for profit in the U.S. and its territories and meet the size requirements set out in SBA guidelines.
You should also have a net worth of less than $ 15 million and have earned an average net income of less than $ 5 million after taxes for the two years preceding your loan application.
Apart from these requirements, you must also have a feasible business plan and the expertise to run your business and repay your loan.
Generally, SBA 504 funds should go towards creating jobs or promoting the growth of your business. You may also use them to repay or refinance business debts and invest in rental real estate.
If SBA 504 loans suit your business, you can access them through a qualified Certified Development Company in your area. Ensure they are certified by the SBA to facilitate such loans before making an application.
3. SBA Microloans
Every small business does not require $ 5 million or $10 million in loans to support its growth or deal with business challenges. Many need smaller amounts to keep their businesses running.
These enterprises can access SBA Microloans of up to $ 50,000 through SBA certified community-based intermediary lenders.
Although each lender has their own loan requirements. Expect them to ask for some kind of collateral and your personal guarantee to access SBA loans.
You can use SBA Microloans to re-build, repair, reopen or expand your business. However, these loans cannot be used to invest in real estate or pay debts.
If you want to apply for an SBA microloan, approach any certified SBA lender in your area for loan application requirements.
What about Paycheck Protection Program Loans (PPP)?
PPP loans are forgivable loans that were provided in the past by the SBA via its lending partners to small businesses that had difficulties paying their employees due to the Covid-19 crisis.
The Trump administration made these loans first available through the Consolidated Appropriations Act (CAA), 2021, in Dec 2020.
Since then, three rounds of PPP loans have been provided to business owners to help them keep employees at work. However, despite additional funding provided for the loans, the program ended on May 31, 2021.
Currently, you can only pursue loan forgiveness for PPP loans or negotiate payback terms with your lender if you had applied for them.
If you are still looking for funding to deal with problems arising from the pandemic, including payroll issues, you may try Economic Injury Disaster Loans (EIDL) loans.
What are Economic Injury Disaster Loans (EIDL)
The Economic Injury Disaster Loan (EIDL) program was created to offer financial relief to small businesses through the CARES Act together with the Paycheck Protection Program (PPP).
Unlike the PPP loans program, it is still running and is scheduled to end on December 31, 2021. Therefore, you can still apply for a loan through it.
These funds are meant to help you pay for expenses you cannot meet due to the pandemic, such as insurance premiums, rent, payroll, utilities, and mortgages.
You can get an EIDL loan of up to $500,000 at an interest rate of 3.75 percent for a small business or 2.75 percent for non – profit organizations.
Last Word
You may have missed out on PPP loans, but you can still apply for SBA loans and EIDL loans to keep your business running.
Are you interested? If you decide to apply, make sure you follow all requirements and apply through an SBA-approved lender to increase your chances of qualifying.
Author: Kelly Nune
