I have been asked by many business owners over the past few days about the emergency SBA coronavirus loans. As we wait for information to become available about this program, some historical context about these emergency loans could be useful.
The Small Business Administration does, and has historically, issued loans in emergency situations, such as hurricanes, fires, tornadoes, etc. What makes these loans different from regular SBA loans is that they are issued by the government--not the banks. And while the interest rates are low and the repayment terms are favorable, the application process has historically taken months and is often unpredictable.
Many business owners are concerned about the impact of the virus on their business and cash flow over the next few months. If you are too, it is important to know that regular SBA loans are still available through banks and we have not seen any changes in their underwriting yet.
Traditional SBA loans are still available, and often easier to apply for
The application process for regular SBA loans is simpler, if you are applying for $350,000 or less and have the historical cash flow to support the payment. These loans amortize over 10 years and the interest rate is 7 percent. There are no prepayment penalties, and no lien on a house--again, if the loan is $350,000 or less. While the lender will take a lien on your business assets, it is willing to sit in second lien position behind other loans. It is also important to note these are term loans instead of lines of credit, which means you start paying interest on the full balance immediately.
In addition to SBA options, you may want to approach your bank about a line of credit, or see if you can get a home equity line of credit against your house. On the other hand, you should be extremely careful of online lenders offering loans or advances with quick paybacks. While they may be appealing for their simplicity, they can rapidly become a bigger problem as daily payments can drain your cash flow.
Filing your taxes now could help speed up the approval process
If you are interested in one of these loans, it would be wise to file your 2019 tax returns as soon as possible, as this could make a difference in being approved. Ninety-plus percent of business loans, including lines of credit, equipment loans, government lending, senior debt instruments, commercial mortgages, and even asset-based lending (at reasonable rates) will require tax documentation.
As the impact of the coronavirus is ever changing, this situation is fluid. As more information becomes available, my advice could change, and my promise is to keep the readers of this column updated regularly. In my company, we advise business owners on a daily basis about SBA loans as well as other borrowing options.
For information about financial support available to small companies hit by coronavirus-related business disruptions, read Inc.'s Coronavirus Financial Assistance Tracker, updated daily.