7 small business loan options for COVID-19 relief
In the best of times, a small business loan offers a financial boost to start up or expand. But with the economic fallout from the coronavirus pandemic, a loan may be all that stands between a revenue shortfall and permanent closure for millions of companies.
You have options. The recent Coronavirus Aid, Relief, and Economic Security Act (CARES Act) opened up multiple loan programs and debt relief options for small businesses. In this article, we'll go over eligibility, loan amount, and key facts for each program.
Demand for COVID-related financial assistance is high at the federal, state, and local level. So, we’ll also cover other effective tools for short-term business spending, like lines of credit. Review these seven small business loans and make your next move with confidence.
Who qualifies for small-business aid?
In addition to providing billions of dollars in loans, the U.S. Small Business Administration (SBA) determines what makes a small business small. A company’s size is usually assessed using the average number of employees or annual revenue.
Generally, if your company has 500 or fewer employees, it’s a small business. The employee and revenue thresholds, however, vary by industry. Even if you think your 30-person software company must be a small business, it’s better to be certain. Check your status in seconds using the SBA’s size standards tool.
The CARES Act mostly added temporary benefits to already-existing SBA programs. On top of the standard SBA qualifications, you’ll have to demonstrate how your business has been adversely affected by COVID-19. You’ll also certify that you’re applying in “good faith.” In other words, you truly need the loan and have given thought to the amount you’re requesting.
Expect each individual loan program and lender to have its own application requirements. We’ll cover the major conditions of eligibility and where you can find the full requirements.
4 small business loan programs for COVID-19 relief
The global coronavirus response has disrupted supply chains, dramatically shifted market demand, strained business budgets, and scattered workforces. These four new small business loan offers, enabled by the CARES Act, are built to help companies weather the storm.
Some loans are completely forgivable (under certain conditions). Other programs include capped interest rates or fast advances on longer-term loans. Here’s an overview:
1. Paycheck Protection Program (PPP)
The economic downturn has forced businesses to slash budgets and significantly reduce operating expenses. Many employers have made tough decisions to limit staff numbers. With 30 million Americans filing for unemployment since mid-March, it’s clear these decisions are happening on an unprecedented scale.
The Paycheck Protection Program (PPP) provides the ability — and incentive — to keep employees on the payroll. The PPP offers potentially forgivable loans of up to $10 million or 2.5 times your payroll expenses for the loan period. If you use at least 75% of your PPP loan for payroll, and the rest for interest on mortgages, rent, and utilities, your loan will be fully forgiven. Other benefits:
- Payments are deferred for the first six months.
- The interest rate is capped at 4%, lower than the average term loan.
- No personal collateral or guarantee is required.
- Owners can draw their salary using the PPP loan. (But you can’t include independent contractors or subcontractors in your payroll costs. They’re eligible to apply for PPP loans themselves.)
The loan application process is fairly simple. Apply through any SBA 7(a) lender or federally insured depository institution or credit union. The current deadline to apply is June 30, 2020.
Read more about the Paycheck Protection Program before you apply.
2. SBA Debt Relief
To prevent further business debt, the SBA is covering loan payments for some of its most popular loan programs. Under the Debt Relief program, the SBA will pay six months of principal, interest, and other fees for all your:
- 7(a) loans: Loans of up to $5 million for working capital and other business purposes
- 504 loans: Loans that provide fixed-rate financing for real estate, new equipment, and other fixed assets, as well as improvements and renovations
- Microloans: Loans of up to $50,000 that can be used for standard business purchases except debt refinancing and real estate purchases
There’s no need to apply for this program. If you have the loans above, the loan terms have already been applied. Any loans disbursed before September 27, 2020 qualify. That means you can take advantage of these terms on new SBA loans for a no-cost cash infusion. Keep in mind that you can’t combine these terms with PPP loans or Economic Injury Disaster loans.
Read more about the SBA Debt Relief program.
3. Economic Injury Disaster Loan (EIDL) and Advance Program
Prior to April 15, small business owners could apply for an advance of up to $10,000 on the Economic Injury Disaster Loan program. Generally, SBA disaster loans, such as EIDL, enabled businesses affected by a disaster to cover operational costs they couldn’t pay due to loss of income. This program existed prior to the COVID crisis, but the CARES Act temporarily expanded eligibility. The $10,000 advance doesn’t have to be repaid. Furthermore, the loan can be refinanced as a PPP loan.
Currently, the EIDL and EIDL Advance program are only accepting applications from U.S. agricultural businesses. Although eligibility is very limited, the program could expand later with increased funding or relaxed demand.
Read more about the EIDL program.
4. SBA Express Bridge Loans
If you have a current relationship with an SBA Express Lender, applying for this is worthwhile to expedite your business financing. The program promises up to $25,000 with a fast turnaround so businesses don’t fold while waiting on a long-term loan.
You may be eligible if your small business was negatively impacted by the coronavirus emergency. You’ll also need to meet 7(a) eligibility requirements. In addition, if you’re waiting on a decision on your EIDL loan application, you may qualify for a special Express Disaster Bridge Loan.
Read more about SBA Express Bridge Loans.
How Brex customers can apply for SBA loans with peace of mind
You don’t have to tackle federal loan applications alone. Get hands-on support and knowledgeable guidance from our partners at the top U.S. accounting firms.
Their financial experts are available to help with the myriad SBA loans we’ve covered, including PPP loans, the EIDL program, and Express Loans.
These programs operate on a first-come, first-served basis until funds run out. Make sure your application is on the top of the pile — and correct — by working with an accountant.
3 more ways to get essential funds
As we’ve mentioned, competition for COVID-19 relief funds is high. Whether you’re deciding whether to apply at all or still waiting on approval, there are useful alternatives to consider.
Here are the other financing options at your fingertips.
1. Business credit card
A business credit card backed by a conscious card issuer is a powerful piece of financial support. For example, when an increasing number of work teams began going remote, we updated the Brex corporate card with new rewards on collaboration software and food delivery.
Business credit cards are a triple threat for business owners seeking immediate funding when budgets are tight. Here’s why:
- They’re generally easier to qualify for than small business loans
- They automatically earn rewards and bonuses as you spend
- They help you raise your credit score so you can qualify for a better loan
2. General business term loan
When you think of a small business loan, this is probably the framework you think of. A term loan is simply repaid with interest over a set period of time. Since the start of the current economic disruption, many large international banks have limited their loan applications to customers with preexisting relationships.
Small banks and credit unions, on the other hand, are receiving priority status for some COVID relief funds and approvals. The SBA recently decided to only review PPP applications submitted through the smallest lenders.
Working with lending institutions with whom you already have a bank account or personal loan could improve your chances of approval.
3. Business line of credit (LOC)
A credit line is one more, viable way to take care of your short-term business needs. Your company can cover essential costs using a credit limit of anywhere from $10,000 to over $1 million. You'll pay interest only on the funds you use and can make purchases with card, checks, and more.
Unlike a term loan, a line of credit gives you access to your funds whenever you need them. And unlike a credit card, you aren’t required to make monthly payments. Keep in mind that LOCs tend to come with higher interest rates than loans.
Managing your new small business loan
Whether you need a rapid recovery or a small cushion during the coronavirus emergency, a small business loan can help. But to weather an economic crisis, your business needs your full attention. That means that you need a business account that safeguards your funds and earns interest while you’re doing your real work.
A cash management account like Brex Cash could be the solution. It’s an all-in-one financial tool that frees small business owners from frustrating fees and balance requirements. Your essential funds earn an industry-leading interest rate while you’re busy thinking up new revenue streams.
It’s just one of the strategies that can help you bridge the gap during this time of uncertainty. For more small business tips, visit our small business COVID-19 resource hub.