On December 22, 2020, Congress passed the new stimulus bill that includes new Paycheck Protection Program loans and new EIDL grants along with other small business support. Learn more about this legislation and apply for a new PPP loan here.
In March 2020, the SBA introduced two different emergency loans from the SBA in response to the coronavirus for small businesses seeking financial assistance. The first option available to small businesses is the Economic disaster loan (EIDL) which is based on SBA disaster loans used in previous natural disasters such as hurricanes, tornadoes, earthquakes or floods.
Did you miss the EIDL and PPP loans? Nav will connect you with small business lenders that meet your needs.
The Paycheque Protection Plan The loan is based on the SBA’s 7 (a) loan program (with some modifications) and is intended to help you keep your employees on the payroll for eight weeks after loan approval. To qualify for a discount for your PPP loan, at least 75% of the loan proceeds must have been allocated to specific payroll expenses:
- Personnel costs
- Costs related to maintaining collective health care guarantees during periods of paid sickness, sickness or family leave and insurance premiums
- Salaries, commissions or similar remuneration of employees
- Interest payments on any mortgage bond (but not to pay principal or prepay a mortgage)
- Rent (including rent under a lease agreement)
- Interest on any other debt contracted before the period covered
- Refinancing of an SBA EIDL loan made between January 31, 2020 and April 3, 2020
In addition to EIDL and PPP, the SBA has made available two other programs that have the potential to help even more small businesses overcome the economic challenges associated with the COVID-19 pandemic.
For small businesses that currently have a business relationship with an SBA Express lender, SBA express bridging loans will allow these businesses to quickly access up to $ 25,000.
The SBA also offers financial relief to small businesses that already have an SBA small business loan through the SBA Debt Relief program.
Types of SBA emergency loans
- Economic disaster loan
- CARES Paycheck Protection Program
- SBA express bridging loans
- SBA Debt Relief
SBA express bridging loans
On March 25, 2020, the Small Business Administration launched a pilot program to allow small businesses that were already working with an SBA Express lender to quickly access up to $ 25,000. In addition to other SBA emergency loans, bridging loans are intended to provide vital economic support for small businesses to recover from temporary loss of income and provide a loan to bridge the gap while applying for an EIDL in the meantime. a decision – and will be repaid in whole or in part by the proceeds of their EIDL loan.
The Express Bridging Loan (EBL) pilot program has been in existence since October 2017 and will expire in March 2021. These bridging loans are only available for six months following a Presidential disaster decree and only SBA Express lenders are able to grant these loans. eligible small businesses.
Which small businesses are eligible for an EBL?
If your business was operational at the start of the declared disaster and you meet all other 7 (a) loan eligibility conditions, the SBA declares EBL loans can only be granted:
- For presidential disaster declarations, small businesses that were located, at the date of the applicable federal disaster, in major counties that were declared disaster areas under the presidential disaster declaration or in any contiguous county; Where
- For the COVID-19 emergency declaration, small businesses located in any state, territory and District of Columbia that have been affected by the COVID-19 emergency.
- Maximum loan amount: $ 25,000
- Maximum percentage of guarantee: For an EBL loan, the SBA guarantee percentage is limited to the maximum guarantee percentage for SBA Express loans. The guaranteed amount of the EBL loan will be factored into the maximum SBA exposure that may be outstanding for all SBA loans to a borrower and its affiliates at any given time.
- Maximum maturity / loan term / interest rate:
- The EBL loan must be structured as a term loan (revolving lines of credit are not allowed).
- The maximum duration of the EBL loan is 7 years.
- The lender may require the EBL borrower to repay the EBL loan in part or in full if the borrower is approved for long-term disaster financing (including an SBA direct disaster loan) which allows for use the loan proceeds to repay the EBL loan.
- The Lende may allow the loan to be amortized over a maximum period of 7 years if the borrower does not obtain long-term financing in the event of a disaster.
- The lender can charge 6.5% more than the prime rate, regardless of the term.
- For variable rate loans, a lender can use the same base interest rate that it uses on its similar-sized business loans unsecured by the SBA; however, the interest rate during the entire term of the loan cannot exceed the maximum interest rate allowed by SBA Express of Prime + 6.5%.
- A lender may charge a default interest rate if they do so on their similar sized SBA unsecured business loans, provided the interest rate does not exceed the amount stated above.
How to use the loan proceeds?
There are certain restrictions on how the EBL loan products can be used.
- The proceeds of the EBL loan are to be used exclusively to support the survival and / or reopening of the small business.
- Lenders must certify in the credit memorandum that the proceeds of the EBL loan will be used by the borrower to support the survival and / or reopening of the small business. This certification must be attached to any warranty purchase request from the SBA.
- The proceeds of the EBL loan can be disbursed as working capital.
Does EBL require a warranty?
SBA Express’s guarantee policy applies to EBL loans. Since the maximum EBL loan amount is $ 25,000, lenders are not required to take collateral for EBL loans.
What are the credit terms for an EBL loan?
All applications will begin with a shortlist for a FICO Small Business Rating Service Score (SBSS Score). The minimum acceptable SBSS score is 130. If the borrower does not achieve the minimum or higher SBSS score, the loan is not eligible for the EBL pilot program.
The borrower’s personal credit rating (for each guarantor) must be satisfactory by the lender’s standards for their similar-sized, SBA-unsecured commercial loans. The lender’s credit score for the EBIL loan must document the suitability of the personal credit score (s).
These particular SBA emergency loans are only available to small businesses with an existing banking relationship with the lender on the date of the declared disaster in order to mitigate the risks associated with the streamlined underwriting process.
SBA Debt Relief
In addition to other SBA emergency loans, for SBA Debt Relief, the SBA will automatically pay the principal, interest, and fees of any current 7 (a), 504, and microloans that a small business may have for the six month period. The SBA will also automatically pay principal, interest, and fees on any new 7 (a), 504, and microloans issued before September 27, 2020.
The SBA also offers automatic deferrals until December 31, 2020 if you had a disaster loan in “regular service” status on March 1, 2020.
For the purposes of this program, automatic carryover means:
- Interest will continue to accrue on the loan.
- 1201 monthly payment notices will continue to be mailed indicating that the loan is deferred and no payment is due.
- The deferral will NOT cancel any pre-authorized debits (PADs) set or recurring payments on your loan. Borrowers who have established a PAD through Pay.Gov or an online bill payment service are responsible for reversing these recurring payments. Borrowers who have had a PAD set up by SBA through Pay.Gov will need to contact their SBA service office to cancel the PAD.
- Borrowers who prefer to continue making payments during the deferral period can continue to make payments during the deferral period. The SBA will authorize these payments normally as if there had been no deferral.
- After this automatic deferral period, borrowers will be required to resume making regular payments of principal and interest. Borrowers who have canceled recurring payments will need to reinstate the recurring payment.
To apply for a Paycheck Protection Program loan or to learn more about the SBA disaster assistance services available to small businesses facing the challenges associated with the COVID-19 pandemic, please visit our COVID-19 Resource Center
Please keep in mind that this information changes rapidly and is based on our current understanding of the programs. This can and probably will change. While we will monitor and update this information as new information becomes available, please do not rely on it solely for your financial decisions. We encourage you to consult your lawyers, CPAs and financial advisors. To review your financing options in real time with one of Nav’s loan experts, please Contact us.
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