Although thousands of small-business owners are hoping that SBA loans will tide them over during the coronavirus outbreak, the Small Business Administration is lagging when it comes to issuing guidance on how $350 billion in relief can be distributed. Until that guidance comes, lenders say they will be unable to issue a high volume of loans to small businesses that need them.
The issue, lenders like CEO and founder of Fountainhead Chris Hurn, say, is that there is confusion over what documentation lenders need to collect from borrowers before they make a loan. Fountainhead is the largest SBA lender in Florida. Hurn said that at present, they do not know how the SBA wants lenders to verify payroll, to what extent the SBA is requiring credit checks, and if the lenders need to seek out tax liens or child support judgments before issuing the loans.
“At this point in time, borrowers have to be patient until we have the guidance,” Hurn said. “The government has to step up and address these remaining questions so that the people who will be on the front lines making these loans can help small businesses.”
Hurn also noted that because the SBA loans have only an 0.5 percent interest rate, there is no secondary market for the loans once they are made. The federal government is likely to purchase them at some point, but lenders are reluctant to make the loans until they have clarity on when the government will do so. At this point in time, the feds have not even confirmed they will buy the loans, although it seems like the only option.
Supplying “the Minimum”
According to the information currently available, borrowers must, at a minimum, supply a driver’s license and social security number of employer identification number. Small businesses will be eligible for up to 250 percent of their average monthly payroll expenses (individual salaries cannot exceed $100,000 annually), up to $10 million. The loans are intended to cover eight weeks of payroll expenses and some debt obligations, and those two months may be taken any time or applied any time between February 15, 2020, and June 30, 2020.
How the Program Might Work with Real Estate Professionals
Many real estate investors and real estate professionals, including investors who also have agent or broker designations, may qualify for one of the two types of SBA loans in the new stimulus program. The Paycheck Prevention Program (PPP), makes loans based on average monthly payroll of your business and may be used for payroll costs, mortgage interest, rents, and utilities. If you manage to keep a certain percentage of your employees on payroll during the eight-week period of the loan, your loan can be forgiven.
The SBA Economic Injury Disaster Loan (EIDL) grant program supports small businesses during declared disasters that have suffered economic harm as a result of those disasters. COVID-19 has been declared an eligible disaster, and the limit on these loan amounts is $2 million. Applicants may receive as much as $10,000 in advance upon application. The advance if forgivable and the funds may be used to provide paid sick leave to employees, maintain payroll, address issues with supply chain distributions, pay rent or mortgage payments, and meet debt obligations.
For both programs, businesses must, at a minimum, make a good-faith certification that they have suffered economic injury due to the COVID-19 crisis.
Have you applied for any SBA loans yet? Do you plan to?
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