With the passage of the $2.2 trillion ‘‘Coronavirus Aid, Relief, and Economic Security Act’’ or the ‘‘CARES Act,’’ financial institutions have a tremendous opportunity to help small businesses in their communities access much-needed capital through the billions of dollars that will be available to help keep companies operating.
Breaking down the Buzzwords: The CARES Act’s SBA Loans for Coronavirus Relief
- The CARES Act and its $349 billion Paycheck Protection Program give financial institutions a tremendous opportunity to help small businesses in their communities access much-needed capital during the coronavirus crisis.
- Numerous other SBA loan programs will also provide assistance to small businesses and self-employed workers.
- The SBA will be updating the needed forms for the Paycheck Protection Program.
Paycheck Protection Program: Opportunity
The federal government is ramping up or expanding several Small Business Administration (SBA) loan programs to help businesses hit hard by fears of COVID-19 and forced closings aimed at halting the spread of the coronavirus. Some programs, like the CARES Act’s Paycheck Protection Program, provide a unique window for financial institutions to assist small businesses in their communities through the SBA 7(a) loan program.
While most financial institutions offer SBA loans as an option to borrowers, relatively few originate many SBA 7(a) loans each year; only about 1,700 banks and credit unions were active SBA lenders in federal FY 2019. The low number is partly because SBA loans can be time-consuming and labor-intensive. Also, many banks and credit unions are usually able to offer other, favorable options to customers or members. But the Paycheck Protection Program is already drawing tremendous interest from financial institutions and businesses – in part because the loans tied to the CARES Act require no collateral, are 100% guaranteed, and can be forgiven entirely, assuming requirements are met.
SBA loan programs tied to coronavirus
To help financial institutions and borrowers sort out the language associated with the many SBA loan programs available, here are some of the buzzwords, names, and brief explanations of various SBA programs tied to coronavirus relief and the CARES Act (sources: SBA, CARES Act):
CARES Act: The $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act, signed by President Donald Trump on March 27, 2020, to provide relief to businesses and households as a result of the impact of the coronavirus crisis. It includes: $349 billion for Paycheck Protection Program loans, $10 billion for Emergency EIDL Grants, and $10 billion for minority business centers of the Minority Business Development Agency to provide technical assistance to small business concerns.
Paycheck Protection Program: A new $349 billion loan program included in the CARES Act that will be available through SBA 7(a) lenders (banks and credit unions) offering unsecured, no-collateral-required, 100% guaranteed loans of up to $10 million or 2.5-times average monthly payroll, whichever is less. The loan will be forgiven if it is used for payroll, utilities, rent, or interest on a covered mortgage. In addition to small businesses (generally, those with 500 or fewer workers), borrowers can include nonprofits, self-employed people (with or without workers), sole proprietors, and independent contractors. Borrowers have to attest that they were affected by the coronavirus, need the funds to keep operating, and that they will maintain the number of full-time-equivalent workers used in determining the loan amount.
SBA 7(a) loans: The traditional SBA 7(a) loan program offers loans of up to $5 million for eligible small businesses to use for working capital; expansion/renovation; new construction; purchase of land or buildings; purchase of equipment, fixtures; lease-hold improvements; refinancing debt for compelling reasons; seasonal line of credit; inventory; or starting a business. Loans typically require borrower guarantees and collateral, and they are usually 50% to 90% guaranteed by the SBA.
Economic Injury Disaster Loan (EIDL): These loans of up to $2 million for working capital are available through the SBA website. Congress approved $7 billion in EIDL’s in the first bill it approved in mid-March, then another $10 billion in the CARES Act signed March 27. Loans are available through Dec. 31.
Emergency EIDL Grants: Through this provision of the CARES Act, applicants of EIDLs can receive up to $10,000 in an emergency grant through the SBA. The money can be used for providing paid sick leave to employees, maintaining payroll to retain employees during business disruptions or slowdowns, meeting increased costs, making rent or mortgage payments, and repaying obligations that can’t be met due to revenue losses.
SBA Express loans: 7(a) loans with accelerated turnaround time for review by the SBA (within 36 hours). Loans usually are up to $350,000, but under the CARES Act, they can be as much as $1 million.
SBA Express Bridge Loans: These loans of up to $25,000 for working capital will be offered through SBA Express Lenders through March 13, 2021, to small businesses demonstrating they were adversely impacted by the COVID-19 emergency. Lenders will use a streamlined underwriting process. Loan proceeds must be used exclusively to support the survival and/or reopening of the small business.
SBA forms used for coronavirus loans
Form 1919: SBA 7(a) Borrower Information Form used to collect information about the SBA applicant. The SBA has said it will modify the form to reflect changes in requirements for the Paycheck Protection Program. For example, the amount of loan will be determined by average payroll, rather than usual information from tax returns.
Form 1920: Lender’s Application for Loan Guaranty for all 7(a) Loan Programs. SBA officials have said the agency will modify the form to reflect changes in requirements for the Paycheck Protection Program. For example, unlike the regular 7(a) program, lenders do not have to determine that the borrower was unable to access credit outside of the SBA loan system in order for a borrower to be approved for a Paycheck Protection Program loan.
E-Tran: The SBA’s loan guaranty origination/servicing solution that is integrated into SBA software products to enable lenders to submit applications electronically from existing screens. Ideally, your loan data file transfers in XML format (e.g., directly from Abrigo’s SBA solution). Otherwise, lenders have to enter information on individual loans on a web page.