U.S. Small Business Administration Loan Programs
The U.S. Small Business Administration (SBA) offers a number of programs to help support small businesses—from counseling to making loans. Several new SBA initiatives have now been developed to help businesses address the Coronavirus challenges. Specifically, the SBA 7(a) loan program has been expanded to include Paycheck Protection Program loans (highlighted below) and a new SBA Coronavirus disaster loan program has been created.
SBA Loan Programs
The SBA has several loan programs for small businesses to utilize. The loans are made through SBA-approved lenders. The SBA’s Lender Match is a free online referral tool that connects small businesses with participating SBA-approved lenders within 48 hours.
- 7(a) program: offers loan amounts up to $5,000,000 and is an all-inclusive loan program deployed by lending partners for eligible small businesses within U.S. States and Territories. The uses of proceeds include working capital; expansion/renovation; new construction; purchase of land or buildings; purchase of equipment, fixtures; lease-hold improvements; refinancing debt for compelling reasons; seasonal line of credit; inventory; or starting a business. The 7(a) loan program is the SBA's primary program for providing financial assistance to small businesses. The terms and conditions, like the guaranty percentage and loan amount, may vary by the type of loan. Use this link for details on the various types of 7(a) loans.
- Expanded 7(a) Loan Program – Paycheck Protection Program: The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which became law on March 27, 2020, provides $349 billion to guarantee private-sector loans through the SBA’s existing 7(a) loan program for small businesses. For motor vehicle parts manufacturers, the definition of “small business” ranges from 1,000 to 1,500 employees. Paycheck Protection Program loans equal 250% of monthly payroll (capped at $10 million), which can be used to cover payroll, mortgages, rent, and other specified expenses.
- The law waives collateral and personal guarantee requirements in addition to borrower and lender fees, defers payments for six months, and caps the interest rate on loans at four percent. The SBA is required to disseminate guidance to lenders on this deferment process within 30 days.
- The SBA will forgive the portion of the loans used to cover payroll, mortgage interest, rent payments, and the cost of utilities for a period of eight weeks if small businesses retain their employees and payroll levels. (At least 75% of the forgiven loan should be for payroll, which includes employee benefit costs for vacation, sick/parental leave, insurance premiums, retirement benefits, and state and local taxes.)
- Small businesses, independent contractors, and self-employed individuals can apply by completing and submitting the Paycheck Protection Program loan application with the required documentation to an approved lender that is available to process your application by June 30, 2020. However, we encourage you to apply as quickly as you can because there is a funding cap.
- Companies looking to apply for 7(a) loans are encouraged to use the SBA’s “Find Local Lenders” page to locate the financial institutions closest to you that are writing PPP loans. It’s easy—just type in your zip code.
- The new law also increases the maximum loan for an SBA Express loan from $350,000 to $1 million through December 31, 2020.
- The CARES Act requires the SBA to pay all principal, interest, and fees on new and existing SBA loan products including 7(a), Community Advantage, 504, and Microloan programs for six months (but does not apply to Paycheck Protection Program loans).
- The U.S. Department of the Treasury is backing the Paycheck Protection Program and has provided the following information:
The Small Business Administration has issued a Paycheck Protection Program rule and Q&A documents to explain the program rules. Ex: How much money you can borrow? What qualifies as “payroll costs”? Do independent contractors count as employees?
- SBA’s PPP Regulation: Interim Rule: Questions & Answers (April 15, 2020)
- SBA’s PPP Regulation: Interim Rule: Guidance on Affiliates (April 15, 2020)
- SBA’s PPP Regulation: Frequently Asked Questions (updated: May 3, 2020)
- SBA's PPP Regulation: How to Calculate Loan Amounts (April 24, 2020)
- SBA's PPP Regulation: Guidance for Self-Employed (Independent Contractors, etc.) (April 24, 2020)
Coronavirus Disaster Loan Program
- The SBA provides low-interest disaster loans to help businesses and homeowners recover from declared disasters. Under the Families First Coronavirus Response Act enacted on March 6, 2020, the SBA established a Coronavirus disaster loan program. The SBA is currently working with states to provide low-interest loans to small businesses and non-profits (3.75% and 2.75% respectively) that have been severely impacted by the Coronavirus (COVID-19). The SBA’s Coronavirus Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million to help overcome temporary revenue loss. For motor vehicle parts manufacturers, the definition of “small business” ranges from 1,000 to 1,500 employees or less depending upon the specific product. Loans may be used to pay fixed debts, payroll, accounts payable, and other bills that can’t be paid because of the disaster’s impact. According to the SBA, Disaster Relief Loans are often approved within 21 days.
- The CARES Act provides another $10 billion to expand the SBA’s Economic Injury Disaster Loan (EIDL) program through December 31, 2020. The law authorizes the SBA to advance up to $10,000 to eligible disaster loan applicants within three days of receiving their applications (applies to applications filed between January 31, 2020 and the end of 2020) and this advance of funds does not have to be repaid. Recipients can use the funds to pay sick leave to employees affected by COVID-19, retain employees, address interrupted supply chains, make rent or mortgage payments, and repay debt. The law enables a borrower who qualified for an EIDL loan related to COVID-19 on or after January 31, 2020 to apply for a Paycheck Protection loan, with an option to refinance that loan into a Paycheck Protection loan until the end of the covered period for the loans (June 30, 2020). However, the emergency EIDL grant award would be subtracted from the amount forgiven under the Paycheck Protection Program. Additionally, the new law permanently expands the SBA’s disaster loan program to cover small entities affected by emergencies for which the president determines the federal government has primary responsibility.
- Note: A borrower that receives assistance under a disaster loan is not eligible to also use another SBA loan for the purpose of paying their employees.