The world is changing around us, and businesses are more on edge than ever before. Making matters worse is the fact that things are changing by the minute. States are issuing new mandates constantly based on the most recent recommendations. Stores are having trouble keeping necessities in stock because items fly off the shelves as soon as they are put there.
Understandably, customers and prospects are getting nervous. But SBA business loans are still out there, still available.
How SBA Business Loans Can Help Your Business Survive and Even Thrive Despite the Coronavirus
As a result, steps are being taken to try and stop, or at least slow, ever sharpening decline of the economy. If you are wondering how to get capital to keep your business running or start a new business, there’s never been a better time. Interest rates area at an all time low. Currently, banks are still lending.
That means loans are available at dirt cheap rates, but not for long. Act now to get the best rates on SBA business loans.
SBA Business Loans are Actually a Great Option During this Time
Here’s the thing. The federal government recently poured $50 billion into SBA loan programs for coronavirus relief. They are also waiving upfront fees on loans to veterans up to $1 million when it comes to the SBA Express program.
As for the SBA Disaster relief fund, the SBA can now exercise available authority. They will use funds to provide loans to businesses that are affected by coronavirus. Funds can be used to help overcome disruptions caused by pandemic.
Additionally, the President is asking Congress to increase funding for this program, with an intent to make 30 million small businesses more resilient to the economic impact of the coronavirus. These funds could be used to pay debts that would not be able to be paid otherwise due to the COVID-19 economic impact. Bills such as payroll, accounts payment, and any others could be covered by these funds.
However, you have to act fast. There is a limited window to access money, and the money itself isn’t infinite. Already, lenders are reviewing weekly statements rather than monthly statements. This is because when revenue starts to fall, business owners will lose the ability to get funding.
What Exactly Does the SBA do?
Their mission is to help U.S. small businesses not only survive, but thrive. They offer a broad range of products through their programs. Yet, for the most part, the SBA does not lend money directly. They work through partner financial institutions to guarantee loans. In this way, they are able to leave the administration of the loans and disbursement of funds to those who do it on a regular basis.
How Do SBA Business Loans Work?
SBA business loans are small-business loans guaranteed by the Small Business Administration and issued by participating lenders, mostly banks. They can guarantee up to 85% of loans of $150,000 or less. In addition, loans that are more than $150,000 will guarantee up to 75%. The maximum loan amount they offer is $5 million.
Due to the fact that these are government loans, meaning that they have a government guarantee, financial institutions are able to offer them at lower interest rates than they would be otherwise even before the rate cut.
Who Qualifies for SBA Government Loans?
To be eligible for SBA Government Loans, you must meet certain qualifications. These include:
- Your business must be for profit.
- Your business must be inside the US.
- Business owners must invest equity.
- You must have exhausted all other financing options.
- Your business must qualify as a small business.
- Your business must be in an eligible industry.
Keep in mind these can change given the current situation with the coronavirus.
Repaying SBA Government Loans
One perk of SBA loans is that you get more time to pay them back than you would otherwise. According to the SBA, the terms depend on how you intend to use the funds.
For example, working capital loans, or funds you intend to use for daily operation, have a repayment term of seven years. However, funds for new equipment purchase have a term of 10 years. On the other hand, real estate loan terms extend even longer to 25 years. Of course, the longer the term the lower the interest, which means lower regular payments.
How Does the SBA Loan Guarantee Actually Work?
With little exception, the SBA does not actually provide the funds for the loans they guarantee. The lenders that partner with them provide the funds, but the agency guarantees a portion. Currently, they will guarantee up to $3.75 million.
The SBA guarantee reduces the risk to the bank. As a result, lenders are able to offer better interest rates and terms than they would be able to otherwise. If the borrower defaults on the loan, the Small Business Administration will pay out their guarantee amount.
How to Apply for an SBA Government Loan
One of the downsides to SBA loans is that they have a lengthy and somewhat complicated application process. There is a lot of red tape involved, but understandably so considering it is the federal government and they are guaranteeing a huge chunk of the loan. This may be adjusted somewhat during the coronavirus outbreak.
Gather the Information
The first thing you have to do is gather the information you will need. This includes:
- The SBA borrower loan information form
- Statement of personal history
- Personal financial statement
- Personal income tax returns for the previous 3 years
- Tax returns for the business for the previous 3 years
- Business certificate or license
- Business lease
- Loan application history
This list along with links to forms and templates is available at SBA.gov. Once you have this information, you can start looking for a lender.
Realize that once you and the lender determine which loan program will work best for your needs, there may be additional paperwork, as each loan has its own set of requirements. This is a general list for beginning the application process for all loans.
To apply for SBA business loans because your business has suffered due to the coronavirus phenomenon, go here first.
Types of SBA Business Loans
In addition to those loan programs already mentioned that are receiving extra funding to help businesses during this time, the other SBA business loans are still available. Due to the rate cut by the Federal Reserve, these should be available at super low rates. The minimum credit score to qualify is 680.
This is the Small Business Administration’s flagship loan program. It offers federally funded term loans up to $5 million. The funds can be used for expansion, purchasing equipment, working capital and more. Banks, credit unions, and other specialized institutions in partnership with the SBA process these loans and disburse the funds.
There is a required down payment of at least 10% for the purchase of a business, commercial real estate, or equipment. The minimum time in business is 2 years. In the case of startups, business experience equivalent to two years will suffice.
This is by far the most popular loan program the SBA offers. Funds are available for a broad range of projects, from working capital to refinancing debt, and even buying a new business or real estate.
These SBA business loans are also available up to $5 million. Funds can pay for machinery, facilities, or land. Generally, they are for expansion. Private sector lenders or nonprofits process and disburse the funds. They work especially well for commercial real estate purchases.
Terms for 504 Loans range from 10 to 20 years, and funding can take from 30 to 90 days. The asset that is being financed has to be used as collateral. There is also a down payment requirement of 10%, which can increase to 15% for a new business.
Furthermore, to qualify you be in business at least 2 years, or management must have equivalent experience if the business is a startup.
Microloans are SBA business loans available in amounts up to $50,000. They work for starting a business, purchasing equipment, buying inventory, or for working capital. Community based non-profits administer microloan programs as intermediaries, with financing coming directly from the Small Business Administration.
Interest rates on these loans are 7.75% to 8% above the lender’s cost to fund. Terms go up to 6 years. They can take upwards of 90 days to fund. The minimum credit score is 640, and the collateral and down payment requirements vary by lender.
SBA Express Loans
These SBA business loans max out at $350,000. They have a maximum interest rate of 11.50%. Also, terms range from 5 to 25 years, and the SBA guarantee is less than with their other loan programs at 50%. To qualify, you must have a debt to service ratio of 1.1 or higher. If the loan is greater than $25,000, collateral may be necessary depending on the lender.
The turnaround for express loans is much faster. In fact, the SBA takes 36 hours or less to give a decision. Necessary paperwork for application is less also. Consequently, express loans are a great option for working capital, among other things, if you qualify.
There are 4 distinct CAPLine programs that differ mostly in the expenses they can fund. Each of them carries a maximum amount of $5 million and an interest rate that ranges from 7% to 10%. Funding can take 45 to 90 days.
The four different programs are:
- Seasonal CAPLines -Financing for businesses preparing for a seasonal increase in sales.
- Contract CAPLines -Financing for businesses that need funding to fill a contract.
- Builder’s CAPLines -Financing for businesses taking on a real estate or construction project.
- Working capital CAPLines -Financing for businesses that are struggling with a short-term slump in sales.
There is no minimum time in business requirement unless you are getting a seasonal CAPLine. That one carries a one year business requirement.
SBA Community Advantage Loans
This program is a pilot set to either expire or extend in 2020. Its purpose is to promote economic growth in underserved areas and markets. Credit decision makers overlook factors such as poor credit or low revenue if the business has the potential to stimulate the economy or create jobs in underserved areas.
Loan amounts range from $50,000 to $250,000 with a maximum interest rate of 11%, while terms range up to 25 years.
In addition to these loan programs, the SBA offers additional programs for certain groups. These include:
- Veterans Advantage- General-use business loans with no guarantee fee for majority veteran-owned small businesses.
- International Trade- General-use financing for businesses actively involved in international trade or hurt by competition from imports.
- Export Working Capital Program- Short-term working capital for exporters backed by invoices or other business assets.
These are Scary Times, but SBA Business Loans are Here to Help
There’s no doubt about it. These are unchartered waters. No one knows what’s going to happen. All we can do is act on what we do know right now. Still, when it comes to applying for loans, you have to act fast before more changes happen and the window disappears. For now, it is the perfect time to get SBA business loans.
They can help your business not only survive, but even thrive in these troubled economic times. However, there is limited time and limited funds available. Run, don’t walk. Even if you aren’t feeling the effects of the coronavirus on your business now, you likely will soon.
Furthermore, if you don’t foresee a need for extra funds, you can still apply and take advantage of lower rates. You may end up needing money and not be able to get it. If you don’t, you can always pay it back without ever using it. No harm no foul is a good rule of thumb here. Better yet, you can use the funds to pivot and adapt your business to the changing economic scene and actually end up seeing more success.