Under the coronavirus stimulus package passed last week, the Small Business Administration (SBA) received $349 billion for guaranteed loans to small businesses negatively affected by COVID-19-related declines or shutdowns. The loan money will be distributed using the SBA’s existing framework, the 7(a) program, which is a partnership program between private financial lenders who issue loans and the SBA, which guarantees them.
Is Your Business Eligible?
If your business or nonprofit has fewer than 500 employees, then you are likely eligible to apply for a loan. Even gig workers, such as ride-share drivers, are eligible, as long as they were in business as of February 15, 2020, and paid employee salaries, payroll taxes, or paid independent contractors.
In your application, you will need to provide proof of payroll costs, but Congress noted that underwriting standards will be “significantly relaxed” compared with typical 7(a) loans.
Who Accepts Applications?
According to the SBA and U.S. Treasury Secretary Steven Mnuchin, about 1,800 private lenders are already approved to issue these loans and new regulations will soon make it possible for nearly all FDIC-insured banks to make them. Approach your lender to find out if they can facilitate your application, use a lending platform offering this service, or just try another lender.
Repayment, Forgiveness & Loan Amounts
If you are worried about repaying the loan, the SBA offers several options. If you retain your workers or rehire them in a certain period of time, you might be eligible for partial or total loan forgiveness. Certain costs are eligible for forgiveness, including:
- Rent payments
- Mortgage obligations and utilities
Given that some applicants may be eligible for as much as $10 million in loan capital, that forgiveness could be substantial. The maximum interest rate will be 4 percent, and borrowers may defer payments for up to a year.
Do you plan to apply for a stimulus loan?
Thank you for reading the Bryan Ellis Investing Letter!
Your comments and questions are welcomed below.