After the government directive to shut down some businesses and ordering consumers to remain indoors due to the COVID-19 outbreak, SMEs have been the worst hit. The majority of these businesses have SBA loans that they are servicing, and their main worry is how they will service these debts during and after the pandemic.

The Small Business Administration (SBA), in an endeavor to provide a financial reprieve to SMEs during this time of economic uncertainty, has offered to service current loans and those that will be issued before September 27, 2020, for six months. But before getting the SBA debt relief, your lender has to establish that you will be able to repay the loan. At the Small Business Loan Advisor, we are here to make sure your SBA loan is disbursed before September 27, 2020, and that you are eligible for the SBA loan debt relief.

Overview of SBA Debt Relief

The outbreak of coronavirus in the U.S. has caused a lot of economic uncertainty. Businesses have been shut down while consumers have been forced to stay home. Servicing SBA loans has become an enormous problem for many SMEs that rely on these loans for expansion or daily operations. In reaction to this, the federal government, through the CARES Act, has set aside various programs to shield SMEs from the effects of the pandemic. One of these programs is the SBA debt relief, whose purpose is to relieve SMEs of the hardship caused by COVID-19.

The relief is for SMEs with 7 (a), 504, and microloans. For small businesses with current loans, the relief program will be repaying the principal, interest, and fees for six months. Those with new loans that will be disbursed before September 27, 2020, or within six months after the enactment of the CARES Act will also be eligible for the relief. The Act has set aside 17 billion dollars for the program

Remember, the SBA is not a lender. Instead, it works with lenders to reduce loan risks, which makes it easy for small businesses to access loans at low-interest rates. Before the SBA makes a payment the principal and interest of your loan, the lender must make an approval. Keep in mind debt forgiveness is for businesses that have entirely dissolved or shut down. Therefore, if your business remains in operation at this time of coronavirus pandemic, you won’t be approved for the relief. But if you are closed down, you will be automatically approved because there is no application required to get SBA loan debt relief.

Loans that Qualify for SBA Debt Relief

As mentioned above, not all loans are eligible for the debt relief program. The few that are eligible to the relief include:

  1. SBA 7(a) Loans

As businesses are considering various options to protect the source of their income from the coronavirus pandemic, SBA 7(a) loans have proved to be more attractive. These loans are available to small businesses at an amount not exceeding five million dollars. The SBA has listed the activities that these loans can be used for. Some of the uses include:

  • Working capital

  • Renovation or expansion

  • New construction

  • Buying of land and buildings

  • Starting capital

  • Lease-hold enhancement

  • Buying of equipment or fixtures

Take note that after the establishment of the new Payroll Protection Program, many people have made applications for SBA 7(a) loans. Due to this, the SBA has informed lenders that it won’t be accepting any new requests. But if Congress approves more funds for the program, they will reopen the system for new applications. If you are considering an application for this loan, you should speak to your Small Business Loan Advisor to understand how the loan works.

As mentioned earlier, SBA works with lenders or banks and borrowers to link them and provide a guarantee on loan. It means that in the event you are unable to repay the loan, the government agency which acted as your guarantor for the loan will repay it.

When planning to apply for a 7(a) loan, you must find a lender or bank registered with the SBA and willing to lend you money under this program.

The 349-billion-dollar fund has been approved after the passing of the coronavirus stimulus bill. The funds are available through the same lenders registered with SBA 7(a) loan program. The plan is known as the Payroll Protection Program (PPP), which is aimed at helping small businesses maintain their workforce and payroll in this time of economic depression.

PPP loans can be used to cover payroll costs, pay rent, mortgage interest, and utilities. With the credit, as long as your small business maintains the same number of employees and payroll at the pre-pandemic levels for two months and uses the funds from the loan as provided by the SBA, then you will get deft relief for all or part of the PPP loan.

Another crucial thing you should note about the PPP loans is that they are 100 percent guaranteed by the government agency. This makes it easy for the lenders to give loans to borrowers because the risk involved in the loan is minimal.

These loans are going to help businesses in a significant way at this period. Issues of workers losing jobs because employers cannot maintain the payroll will significantly reduce.

Keep in mind that when the SBA 7(a) loans get more funding, a small business can borrow up to two and a half times their average monthly payroll. Small businesses will be allowed to borrow no more than 10 billion dollars.

Lenders registered with SBA commenced processing of PPP loan applications for small businesses and sole proprietors on April 3, 2020. Independent contractors and self-employed individuals, on the other hand, began their applications on April 10, 2020. And because these loans are attractive many candidates, banks and lenders are giving the number one priority to their existing clients. If you want to apply for these loans, you need to retain the services of a Small Business Loan Advisor. We will help you access the list of lenders or banks providing these loans and the requirements for application. That way, you improve the chances of qualification for the loan and to have part of or the whole loan forgiven.

  1. SBA Microloans

When thinking of starting a business or expanding an existing one, then you should know that you need funding, and the most attractive option for you is SBA microloan. Microloans are defined as trivial sums of cash loaned to small entities at low rates. The funds are ideal for startups or SMEs that require little capital and prefer low-interest loans with excellent payment terms.

While SBA loans are obtainable by conservative fiscal outlets like banks, credit unions, and lenders, microloans are different. The funds are availed through NGOs or community-based organizations.

NGOs receive an amount not exceeding 750,000 dollars from SBA in year one of the microloans. After the first year is over, as much as one million, two hundred and fifty dollars can be on loan per annum. The amount is capped at 5 million dollars at any one time. Once it receives the money, the NGO acts as an intermediate, availing loans to small entities.

On average, SMEs can apply for a loan of between 13,000 to 14,000 dollars. The maximum amount a small business or startup can borrow is $50,000 and a minimum of $500.

Take note that these loans are different from other SBA loans because this government agency only sets the cap on the loans. But the intermediary organizations like NGOs are the ones that set the requirements, rates, and admissibility conditions for the funds.

The funds from microloans can only be used for the following purposes:

  • Buying of inventory

  • Buying supplies

  • Purchase of fixtures, furniture or equipment

  • Working capital

  • Startup capital

The microloan package is meant for current SMEs and yield-oriented startups. It is an excellent option for entities that require small loans and want to enjoy the fruits of SBA loan products.

Also, if SBA loan is disbursed to your business before September 27, 2020, the SBA will automatically service the loan in terms of principal, interests, and fees for six months.

Those who receive SBA disaster loans have a relief option too. Loan repayments will be deferred to December 31, 2020. It means while the loan accumulates interest, you will not make any payments for the period. But if you are able and willing to repay, you can do so. But if your business is closed or you are making losses, the relief will allow you not to make any payments until the deferment period elapses.

Take note that in disaster deferral loans, you are the one to cancel pre authorized debits and recurring payments because the SBA will not be canceling them on your behalf. From January 1, 2021, you will resume paying the disaster loan as usual.

Keep in mind that all small business startups qualify for these loans, including non profit daycare centers. But businesses looking for funding of an amount not exceeding 5 million dollars, you should explore other options like 7(a) loans.

For a small business to be eligible for microloans, it must have been in the market for at least twenty-four months and have sufficient funds to service the loan.

The terms of loans are set by the intermediary organization; as such, they vary from one organization to another. However, on average, all applicants should have a credit score of not less than 640 when making the application. Speak to your local intermediary organization about their terms before considering an application. You can know if you meet the credit score requirement by checking the free credit score online.

On top of the credit score, you will need a guarantor and collateral. You must also show the intermediary organization your business plan to demonstrate a positive financial stance.

  1. 504 Loans

The 504 loans are a financing program provided by the SBA. The loans are eligible for small businesses operated by U.S. citizens and resident aliens. The loans are suitable for small entities looking for fixed interest rates with long-term financing and low deposits. The program aims to promote business growth and the creation of employment opportunities through small businesses.

The SBA works with Certified Development Companies (CDCs) to provide 504 loans or long-term financing to businesses. CDCs do this by partnering with both lenders and the SBA. These loans have strict usage. Those who receive these loans use them for the following:

  • Buying an existing building

  • Buying land and land improvement

  • Build new facilities

  • Renovate existing amenities

  • Buy machinery and equipment for long-term use

  • Refinance debts in connection with renovating equipment and amenities

Businesses that are eligible for these loans can borrow up to 5.5 million dollars and use the money to buy fixed assets for expansion or modernization of the company. Note that if the bill doesn’t fit 504 loans, you should apply for 7(a) loans because they offer a more comprehensive array of options for SMEs.

Keep in mind that not everyone qualifies for these loans. To qualify, you must meet the following requirements:

  • Meet the SBA size requirements

  • Your business must have a net worth of less than $15 million

  • Two years before applying for the loan and after federal income tax, you must have an average net worth of not more than five million dollars.

  • Your business must be profit-oriented

  • As a business owner, you must be a U.S. citizen or a resident alien

Remember that the purpose of 504 loans is to create employment. For this reason, you must meet job creation and retention criteria as a borrower. For every $65,000 you receive from SBA, you must create one job opportunity.

Additional Debt Relief

The SBA is also providing automatic deferments for SBA backed disaster loans that were in regular servicing as of March 1, 2020, through December 31, 2020. For small businesses, automatic suspension or deferral means the following to borrowers:

  • Interest will still accumulate on the loan

  • 1201 monthly payment bills will continue being mailed and will reflect the loan is deferred, and no payment is due.

  • Pre-Authorized Debit (PAD) will not be automatically canceled. You must reach out to the servicer to make the cancellation.

  • Borrowers capable and who prefer making payments during the deferment period are allowed to continue doing so. The SBA will assume that there was no postponement in their case.

  • Once the deferment duration is over, borrowers will resume remitting payments towards the loan as usual. In case you cancel the recurring payments, you will have to reestablish it.

Eligibility Requirements for SBA Debt Relief

There are only a few requirements that must be met to qualify for SBA loan debt relief. The SBA will be paying the principal, interest, and fees for six months for the following loans:

  • 504 loans

  • 7(a) loans

  • Microloans

To be eligible for disaster loan deferrals, you must have a loan that you are servicing as of March 1, 2020. During the deferral period, you will receive payment notices as usual. But these notices will not be informing you of the current amount due. Instead, they will be notifying you that the payment is deferred, and there is no due payment.

Other Funding Options for Small Businesses to Address COVID-19 Pandemic

Even if you get the SBA debt relief, there are multiple different options available to help your small business during this period of economic uncertainty caused by the coronavirus outbreak. Some of these funding options include:

SBA’s EIDL Loan Emergency Advance

The emergency loan advance is aimed at providing at most 10,000 dollars economic relief to small businesses experiencing temporary financial losses because of the COVID-19 outbreak. The fund will be available for companies that will successfully apply. The advantage of the loan is that repayment isn’t mandatory.

Currently, the SBA can’t accept further applications, just like with the PPP program. However, applicants who have successfully submitted their requests will have their applications processed.

The fund provides critical economic support to small businesses and focuses on employees with less than 500 workers, which includes independent contractors and sole proprietors. It will take a few days for the entities who have made successful applications to receive the money.

SBA Express Bridge Loans

People currently working with the SBA Express lender can receive an amount of up to two hundred and fifty thousand dollars to assist with revenue shortage. These loans are also available for businesses that have already qualified for EIDL.

If you don’t have an SBA loan, consult with a Small Business Loan Advisor to find out other options that you can explore to save your businesses from the temporary loss of revenue resulting from the coronavirus outbreak.

Also, it’s essential to understand that SBA debt relief doesn’t apply to PPP, EIDL, and express bridge loans. But for the EIDL loans that were in regular servicing when CARES Act was enacted on March 1, 2020, will get an automatic loan deferral through to December 1, 2020. Still, the interests on the loans will continue to accumulate.

Find the Right Attorney to Review my Loan Application Near Me

If your business is suffering financial losses because of the coronavirus pandemic, reach out to Small Business Loan Advisor at 888-919-1210. Our attorneys will review your SBA loan application to ensure that it is successful and that you are eligible for SBA debt relief. With the relief, you don’t have to worry about repaying the SBA loan until six months are over.