A small business loan is a great way to offer financial aid to startup or expand small businesses. A host of businesses depends on loans such as these to expand operations or even to meet working capital requirements.
The coronavirus pandemic has changed the lives of millions. It has also caused economic fallout in its wake. At a time like this, a loan could prove to be a savior to scores of businesses that would have permanently shut down otherwise.
The government has provided small businesses with options to deal with the crisis caused by the pandemic. From loan options to debt relief, programs like the Coronavirus Aid, Relief, and Economic Security Act aims to offer a way out for small businesses.
The U.S. Small Business Administration provides billions of dollars in loans. It also determines what constitutes a small business loan. Factors like number of employees and annual revenue usually play a part.
Generally, a company that has less than 500 employees can be considered a small business. However, type of industry will decide the threshold for number of employees and revenue.
The CARES Act added certain temporary benefits to SBA programs. To qualify, you need to show how your business has been affected by the pandemic. You will also have to certify that you are applying in good faith, and that you really need the loan.
Types of Loans for COVID-19 Relief
The pandemic has led to a disruption in various aspects like supply chains, budgets, and workforces. These loans, enabled by the CARES Act, are designed to help small businesses through the storm.
Paycheck Protection Program: The economic fallout has led to businesses needing to slash budgets and reduce expenses. Many employers have been forced to limit employees. An unprecedented number of employees have filed for unemployment since the beginning of the pandemic. This program is designed to provide the ability retain employees. The program offers forgivable loans for up to 2.5 times the payroll expenses. If the business uses around 75% of the loan for payroll and the rest for interest on rent and utilities, the loan stands forgiven. Benefits of the program are mentioned below.
- Payments get deferred for the initial six months.
- The interest rates are lower than the average term loans.
- No collateral or guarantee.
- The PPP loan can be used by owners to draw their salary.
SBA Debt Relief: Under this program, the SBA will pay the principal, interest, other fees, for six months for all 7(a), 504, and microloans. This program does not need applications. Loan terms have already been applied for these loans.
Economic Injury Disaster Loan: Earlier, small business owners could apply for an advance through this program. Generally, these types of loans assisted businesses with operational costs. After COVID, the CARES Act expanded eligibility temporarily and the advance did not have to be repaid. The loan could also be refinanced as a PPP loan.
SBA Express Bridge Loans: If a business has a current association with an SBA Express Lender, this loan will aid in expediting funding. This program helps with quick turnaround to prevent businesses from shutting down. If a business has been negatively impacted due to the pandemic, it may be eligible for this program.
With the severe impact of the pandemic on businesses all over the globe, programs such as these can prove helpful to owners who fear shutdown.