How small businesses can get help from the SBA after a pandemic

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This week President Biden announced his US bailout plan and its economic impact. He said in a speech on Thursday September 16 that the economy had created an average of 750,000 new jobs per month over the past three months and that it was growing at the rate it has been growing for nearly 40 years. He also said the United States is the only developed country in the world with an economy larger now than it was before the pandemic.

Despite this rosy outlook, there are still challenges for the economy. The advent of the delta variant of COVID, ongoing supply chain problems, and bad actors looking to benefit from the pandemic all add to the challenges facing the American economy.

The president claims that leading economists, forecasters like Moody’s and major international financial institutions believe his plan will create jobs, stimulate our economy and reduce inflationary pressures. He also said that 15 Nobel Prize winners in economics published a letter in support of his agenda that “investing in long-term economic capacity and improving the ability of more Americans to participate productively in the economy will ease long-term inflationary pressures”. . ”

According to independent fact-checkers from PolitiFact, there is broad consensus that Washington should spend hundreds of billions of dollars to contain the coronavirus, help small businesses and help the millions of people who have lost their jobs. However, PolitiFact said the president treated this support as confirmation of his entire $ 1.9 trillion plan and that many prominent economists have concerns about the price.

Access to capital

In the post-PPP era, capital is flowing into the hands of small business owners, albeit at a much slower pace than it was before the COVID pandemic broke out. According to the latest Biz2Credit Small Business Lending Index ™, the percentage of small business approvals at major banks (more than $ 10 billion in assets) rose from 13.8% in July 2021 to 13.9% in August.

At the same time, the approval of small banks rose from 19.1% in July to 19.3% in August. The percentage of approval from small banks has increased by eight tenths of a percent compared to the previous year. Small businesses are starting to borrow again to improve their cash flow and grow.

But how far have bank loan approval percentages gone?

In February 2020, just before COVID stalled the economy, large banks approved 28.3% of loan applications, while small banks approved more than half (50.3%) of funding applications. This means that the approval rates are now half as high as they were before the pandemic.

Institutional lenders were approved to 24.3% in August, up from 23.9% of funding requests in July and 2.2 percentage points more than a year ago. In contrast, institutional lenders funded nearly two-thirds (66.5%) of the applications received in February 2020.

Alternative lenders (merchant cash advance companies, factors, and others) continue to be a good source of capital for small business owners. They tend to focus less on FICO scores than on the financial health of the borrowers applying for funding.

EIDL

The SBA continues to help small businesses recover from COVID-related hardship through its Economic Injury Disaster Loan (EIDL) program. The loans are granted directly by the SBA and – in contrast to PPP funding – have to be repaid. An EIDL loan is a low-interest, fixed-rate, long-term loan that will help overcome the effects of the pandemic by providing working capital to cover operating costs.

Related: The government can use the lessons learned from PPPs in future programs

Funding can be used as working capital to make regular payments for business expenses, including payroll, rental or mortgage payments, utility bills, and other ordinary business expenses. An EIDL loan can also be used at any time to pay off business debts. The maximum EIDL amount is $ 2 million and the SBA will begin approving loans over $ 500,000 on October 8, 2021. EIDL loans have a term of 30 years and a fixed interest rate of 3.75%. (The rate for private, non-profit organizations is 2.75%.)

Payments are deferred for the first 2 years (during which interest accrues), and principal and interest payments are made over the remaining 28 years. There is no early repayment penalty and no fee for loans of $ 25,000 or less when you apply directly through the SBA.

Loans greater than $ 25,000 incur a one-time fee of $ 100 for a lien on the borrower’s business assets plus the cost of the real estate lien, if applicable. Loans greater than $ 500,000 that the SBA uses real estate as collateral will incur a one-time fee of $ 100 for a lien on the borrower’s business assets. In addition, the borrower is responsible for collecting the mortgage and paying related fees.

Loans greater than $ 25,000 require collateral and loans greater than $ 200,000 require a personal guarantee.

If the small business is a first-time COVID EIDL applicant, the business owner must complete the following steps to apply:

  • Confirm the authorization;
  • Fill out the admission form;
  • Sign in to create a portal username via an SBA email invitation;
  • Complete portal steps and submit relevant documents; and
  • Respond to SBA requests for signature, confirmation and documents.

The average SBA decision deadline for $ 500,000 or less is several weeks. The SBA has published a number of Frequently Asked Questions to help prospective borrowers assess their eligibility for EIDL funding.

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