Traditional SBA loans received a major upgrade as part of the overhaul of the CARES Act

• A program that provides temporary relief to borrowers of SBA-backed loans has been renewed.
• Borrowers under the SBA’s 7 (a), 504 and microcredit programs can get six months of repayment.
• New borrowers will receive six-month coverage on approved loans until September 30.
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The December legislation that improved the CARES Act and re-authorized PPP also revived a program that allows borrowers of SBA-backed loans to skip interest and principle payments for six months.

This debt relief program is expected to make the SBA’s bread and butter loan programs more affordable and attractive to new borrowers. Small businesses could get up to $ 36,000 and not have to pay the first six months of payments.

New SBA loans from 7 (a), 504 and microcredit programs are eligible until September 30.

This is how it works

The latest coronavirus assistance program orders the SBA to make monthly principle and interest payments on behalf of borrowers, up to a limit of $ 9,000 per month, for six months.

This means that new borrowers will be able to forgo six months of payments, for a maximum total of $ 36,000. They will be required to resume making payments once the grace period has ended.

Existing borrowers who have already received loan repayment assistance under the first version of the CARES Act will only be entitled to three months of additional payments, while those in areas the SBA deems underserved or “hard hit” will get another eight months. month. Sectors hard hit include: food services, accommodation, arts, entertainment, recreation, education, laundry and personal care services.

The actual payments will be determined by the specific size of the loan and the repayment schedule.

Who is eligible

As with any SBA program, there are rules on how the funds can be used.

First, your business will need to demonstrate its ability to repay the loan, as these loans are non-repayable like P3s, and debt payments will resume after the grace period ends.

On the other hand, given the new requirement to prove the drop in income in order to obtain a PPP loan on the second draw, this program could be an attractive financing option for entrepreneurs who have successfully stabilized their business and are looking to grow.

Another key eligibility rule is that applicants must prove that they have not been able to obtain credit elsewhere.

How to use the money

Despite remarkably low interest rates, some businesses find it difficult to access the credit they need to operate or expand as lenders tighten their requirements.

Under Program 7 (a), the SBA guarantees 85% of loans up to $ 150,000 and 75% beyond, giving lenders greater confidence in approving a loan than they are. might otherwise refuse. 7 (a) loans are the most common type and can be as high as $ 5 million for most business needs, available from most banks.

504 loans are for long-term real estate investments of up to $ 5 million, offered through the SBA’s network of certified development companies. Microcredits range from $ 500 to $ 50,000, administered by SBA-approved nonprofit community lenders.

A strange twist in all of this is that some borrowers who were not eligible for SBA loans because of their access to credit elsewhere can now meet this requirement if they have seen their financing options wane in the past year. .