With the PPP ending on March 31, 2021, what are the alternatives to the PPP for a small business?
With the second round of the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) ongoing until March 31, 2021, many small businesses are doing all they can to apply to get in on the act. If you are one of these small businesses looking to use, we can help. Just contact us or call us at (800) 795-3919. If not, what are the alternatives to the PPP?
While many businesses are applying for a PPP loan, not all will qualify or get access to funding. It is not only about qualifying for funding, but monies are limited to a maximum of $2,000,000 with many companies vying for funding.
For those companies applying but cannot secure the funding they need, it is not the end of the world as there are additional options available.
Other SBA Loans and Grants
The SBA is an independent agency of the federal government to aid, counsel, assist, and protect the interests of small business concerns. As the largest guarantor of loans to small businesses, they have several lending programs available to businesses.
Small business loans backed by the SBA likely have lower interest rates and more favorable terms than private lenders’ loans. However, borrowers need to meet minimum credit standards and may need to put down collateral to secure a loan. The loan application process is also longer and more tedious than comparable private-sector loans.
SBA Economic Injury Disaster Loans (EIDL)
For businesses impacted by natural disasters, the SBA has low-interest loans available to companies with up to 500 employees that can show a financial loss. Fortunately, the coronavirus pandemic is considered to be a natural disaster by the SBA. As a result, they are accepting applications.
Eligible small businesses, including agricultural businesses and private nonprofit corporations, can receive up to six months of working capital, up to $150,000. For amounts borrowed more than $25,000, collateral is required. Money borrowed from the EIDL program can be used to pay operating expenses, including fixed debt payments, and unlike the PPP program, EIDLs are not eligible for loan forgiveness. Still, they can have their payments deferred for one year.
SBA 7(a) Loans
The SBA’s largest and most well-known small business lending program guarantees loans originated by SBA lenders. However, the amount you can borrow and the terms will depend upon your borrowing capacity, business needs, and underlying loan program.
SBA Microloans top out at $50,000 while 7(a) loans are capped at $5 million. Also, as part of the 7(a) program, SBA Express loans max out at $350,000 but have been temporarily raised to $1,000,000 until October 1, 2021, due to the Economic Aid Act passed in late 2020. After that, SBA Express loans will be capped at $500,000.
Both SBA 7(a) proceeds and Express loans can both be put toward working capital loans. Whereas 7(a) loans can refinance existing debt and other things, Express microloans cannot.
Unlike loans made through the PPP, SBA 7(a) loans and Express loans are not forgivable. However, they qualify for the SBA’s debt relief program, which benefitted from the latest round of coronavirus relief. As a bonus, the SBA will pay the first months of principal and interest on loans approved between February 1 and September 30, 2021.
State and Local Grant Programs
In addition to the SBA, State and local governments across the United States are making grants available to small businesses impacted by the coronavirus. Large banks like Wells Fargo and Bank of America are also getting into the act with grant programs of their own. The terms and conditions to apply are going to vary by the grant program.
Working Capital Loans
A working capital loan is used to fund a company’s everyday operations. These funds are used to cover short-term operational needs such as salaries, inventory, and other short-term needs. These funds cannot be used to buy long-term assets or make investments in such things as plant and equipment.
A borrower’s credit-worthiness is considered when underwriting a working capital loan. Additionally, a company’s cash flow and debt service are taken into consideration to ensure that the loan can be repaid.
Wrapping it all up
For those businesses impacted by the coronavirus, the SBA’s PPP accepts applications through March 31, 2021. There are many alternative programs available for those small businesses who miss the deadline or fail to qualify.
The largest and most well-known SBA program is the 7(a) loan program, followed by Express loans. Additionally, many state and local governments across the United States are making grant funds available to small businesses impacted by the coronavirus pandemic.
Contact us or call (800) 795-3919 to discuss financing alternatives for your business.