SBA Emergency Loans in Response to Coronavirus
On December 22, 2020, Congress passed the new stimulus bill which includes new Paycheck Protection Program loans and new EIDL grants along with other small business relief. Learn more about this legislation and apply for a new PPP loan here.
In March 2020, the SBA introduced two different SBA emergency loans 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.
Missed EIDL and PPP loans? Nav will connect you with small business lenders that meet your needs.
The Paycheck 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 forgiveness on your PPP loan, at least 75% of the loan proceeds must have been allocated to payroll-specific expenses:
- Personnel costs
- Costs related to the maintenance of group health care benefits during periods of paid sick, medical or family leave and insurance premiums
- Salaries, commissions or similar remuneration of employees
- Interest payments on any mortgage obligation (but not to pay principal or to prepay a mortgage)
- Rent (including rent under a lease agreement)
- Interest on any other debt security contracted before the covered period
- Refinancing of an SBA EIDL loan made between January 31, 2020 and April 3, 2020
In addition to the EIDL and PPP, the SBA has made available two other programs that have the potential to help even more small businesses navigate the economic challenges of the COVID-19 pandemic.
For small businesses that currently have a business relationship with an SBA Express lender, SBA Express Bridge Loans will allow these companies to quickly access up to $25,000.
The SBA also provides financial relief for 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 Act Paycheck Protection Program
- SBA Express Bridge Loans
- SBA Debt Relief
SBA Express Bridge 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 to small businesses to recover from temporary loss of income and to provide a loan to bridge the gap when of the request for an EIDL pending a decision. be reimbursed in whole or in part by the proceeds of their EIDL loan.
The Express Bridge Loan (EBL) pilot program has been in existence since October 2017 and will expire in March 2021. These bridge 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 when the declared disaster began and you meet all other 7(a) loan eligibility requirements, the SBA stipulates EBL loans cannot be granted:
- For Presidential Disaster Declarations, small businesses that were located, as of the applicable Federal Disaster Date, in major counties that were declared disaster areas under the Presidential Disaster Declaration or in contiguous counties; Where
- For COVID-19 Emergency Declaration, small businesses located in any state, territory, and the District of Columbia that have been impacted by the COVID-19 emergency.
- Maximum loan amount: $25,000
- Maximum guarantee percentage: For an EBL loan, the SBA guarantee percentage is limited to the maximum guarantee percentage for SBA Express loans. The secured amount of the EBL loan will count toward the SBA’s maximum exposure that may be outstanding for all SBA loans to a borrower and its affiliates at any given time.
- Maximum maturity/loan duration/interest rate:
- The EBL loan must be structured as a term loan (revolving lines of credit are not permitted).
- The maximum duration of the EBL loan is 7 years.
- The lender may require the EBL borrower to repay part or all of the EBL loan if the borrower is approved for long-term disaster financing (including an SBA direct disaster loan) that allows for use the proceeds of the loan for the repayment of the EBL loan.
- The Lende can authorize the amortization of the loan over a maximum period of 7 years if the borrower does not obtain long-term financing in the event of a disaster.
- The lender may 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 they use on their similarly sized SBA unsecured commercial loans; however, the interest rate throughout the term of the loan cannot exceed the maximum interest rate allowed by Prime’s SBA Express + 6.5%.
- A lender may charge a default interest rate if they do so for their similarly sized SBA unsecured commercial loans, as long as the interest rate does not exceed the amount shown above.
How can loan proceeds be used?
There are certain restrictions on how EBL loan proceeds can be used.
- EBL loan proceeds are to be used exclusively to support the survival and/or reopening of the small business.
- Lenders must certify in the credit note 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 accompany any warranty purchase request from the SBA.
- Proceeds from the EBL loan can be disbursed as working capital.
Does the EBL require a warranty?
The SBA Express 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 requirements for an EBL loan?
All applications will begin with a pre-selection for a FICO Small Business Rating Service Score (SBSS score). The minimum acceptable SBSS score is 130. If the borrower does not receive the minimum SBSS score or higher, the loan is not eligible for the EBL pilot program.
The borrower’s personal credit score (for each guarantor) must be satisfactory by the lender’s standards for its similarly sized, non-SBA guaranteed commercial loans. The lender’s credit score for the EBIL loan must document the adequacy of the personal credit score(s).
These special SBA emergency loans are only available to small businesses with an existing banking relationship with the lender on the date of the declared disaster to mitigate the risks associated with the streamlined underwriting process.
SBA Debt Relief
In addition to other SBA emergency loans, thanks to SBA Debt Relief, the SBA will automatically pay the principal, interest, and fees of any current 7(a), 504, and microloans a small business may have for a 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.
Under this program, automatic adjournment means:
- Interest will continue to accrue on the loan.
- Monthly 1201 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 up 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 requested the SBA to establish a PAD through Pay.Gov will need to contact their SBA service office to cancel the PAD.
- Borrowers who prefer to continue making payments during the deferment period may continue to make payments during the deferment period. The SBA will authorize these payments normally as if there were no deferment.
- After this automatic deferment period, borrowers will be required to resume making regular principal and interest payments. Borrowers who have canceled recurring payments will need to reinstate the recurring payment.
To apply for a Paycheck Protection Program loan or learn more about SBA disaster assistance services available to small businesses facing challenges associated with the COVID-19 pandemic, please visit our COVID-19 Resource Center
Please keep in mind that this information changes quickly and is based on our current understanding of the programs. This can and probably will change. Although we will monitor and update this information as new information becomes available, please do not rely solely on this information for your financial decisions. We encourage you to consult with 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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