How Small Businesses Can Get Post-Pandemic SBA Help
This week, President Biden touted his US bailout and its impact on the economy. He said in a speech on Thursday, September 16 that over the past three months, the economy has created an average of 750,000 new jobs per month and is growing at the fastest rate in almost 40 years. He also said the United States is the only developed country in the world whose economy is now larger than it was before the pandemic.
Despite these optimistic prospects, challenges for the economy still loom. The emergence of the Delta variant of COVID, persistent supply chain issues, and bad actors seeking to profit from the pandemic are all contributing to the challenges facing the U.S. economy.
The president says leading economists, forecasters like Moody’s and major international financial institutions believe his plan will create jobs, grow our economy and reduce inflationary pressures. He also said that 15 Nobel laureates in economics had issued a letter in support of his program, which “invests in long-term economic capacity and will improve the ability of more Americans to participate. productively to the economy, this will ease inflationary pressures in the long run. . ”
According to independent fact-checkers of Political fact, there is broad agreement that Washington should spend hundreds of billions of dollars to stem the coronavirus, help small businesses, and help the millions who have lost their jobs. However, PolitiFact said the president treated this support as approval of his entire $ 1.9 trillion plan and many prominent economists were concerned about the price.
Access to capital
In the post-PPP era, capital is flowing into the hands of small business owners, albeit much more slowly than before the COVID pandemic. Small business loan approval percentages in major banks (over $ 10 billion in assets) rose from 13.8% in July 2021 to 13.9% in August, up three-tenths of a percentage from a year ago, according to the latest Biz2Credit Small Business Lending Index â¢.
At the same time, approvals for small banks also fell from 19.1% in July to 19.3% in August. The approval percentage at smaller banks is up eight-tenths of a percent from last year. Small businesses are borrowing again to improve their cash flow and to grow.
But how much have the approval percentages for bank loans fallen?
In February 2020, just before the economy was shut down by COVID, large banks approved 28.3% of loan applications, while smaller banks approved more than half (50.3%) of funding requests. As a result, approval rates are now half as high as they were before the pandemic.
Institutional lenders approved at 24.3% in August, up from 23.9% of funding requests in July and 2.2 percentage points from a year ago. In contrast, in February 2020, institutional lenders funded nearly two-thirds (66.5%) of the requests they received.
Alternative lenders (merchant cash advance companies, letter carriers and others) continue to be a good source of capital for small business owners. They typically focus less on FICO scores and more on the financial health of borrowers applying for financing.
The SBA continues to help small businesses recover from COVID-related challenges with its Economic Disaster Loan (EIDL) program. Loans are made directly by the SBA and, unlike PPP financing, must be repaid. An EIDL loan is a low-interest, fixed-rate, long-term loan to help overcome the effects of the pandemic by providing working capital to cover operating expenses.
Related: Government can incorporate lessons learned from PPP into future programs
The funding can be used as working capital to make regular payments for operating expenses, including salaries, rent or mortgage payments, utility bills, and other routine business expenses. An EIDL loan can also be used to pay off commercial debts incurred at any time. The maximum amount of the EIDL is $ 2 million and the SBA will begin approving loans over $ 500,000 on October 8, 2021. EIDL loans have a term of 30 years and a fixed interest rate of $ 3. 75%. (The rate for private non-profit organizations is 2.75%.)
Payments are deferred for the first 2 years (during which interest will accrue), and payments of principal and interest are made for the remaining 28 years. There is no penalty for prepayment and no fees for loans of $ 25,000 or less when applying directly through the SBA.
For loans over $ 25,000, a one-time fee of $ 100 is charged for filing a lien on the borrower’s business assets, plus the fee for filing a lien on real property, if applicable. For loans over $ 500,000 in which the SBA takes real estate as collateral, a one-time fee of $ 100 is charged for filing a lien on the borrower’s business assets. In addition, the borrower will be responsible for registering the lien on real estate and paying the associated fees.
A guarantee is required for loans over $ 25,000 and a personal guarantee is required for loans over $ 200,000.
If the small business is a new EIDL COVID applicant, the business owner should take the following steps to apply:
- Confirm eligibility;
- Complete the admission form;
- Register to create portal username via SBA email invitation;
- Complete the portal steps and submit the relevant documents; and
- Respond to SBA signature, confirmation and document requests.
The average SBA decision time for $ 500,000 or less is several weeks. The SBA has published a set of Faq to help potential borrowers assess their eligibility for EIDL funding.