Looking for a CARES Act SBA 7(a) loan to get you back on your feet?
On March 31st, the Treasury and SBA issued important guidelines related the CARES ACT Payroll Protection Program (PPP) loan program.
When can I apply for a loan?
- April 3rd for small businesses and sole proprietor ships
- April 10th for independent contractors and self-employed
We recommend that you apply on April 3rd (at midnight if possible). If you can’t apply on Friday, try over the weekend or next week at the latest (see “Could the money run out?” below).
Where do I apply?
Many banks, credit unions, and other SBA-approved financial institutions will participate in the program. Some may initially just work with their current banking customers and then expand to others, whereas some may accept anyone. The Treasury threw a curve ball in the program today by dramatically lower the interest rate to .5% from 4%, which may dampen some banks enthusiasm to work with anyone other than their current customers. Exploring your existing banking relationship may be a logical step for many.
The option we recommend for those not comfortable with their current banking relationship or who are not participating in the CARES Act program is Smartbiz, which specializes in SBA lending. Based in San Francisco, Smartbiz is tech savvy and has years of experiences dealing with small business SBA loans. So they check all the boxes for us — excellent technology portal designed for high throughput requests and have deep experience with SBA lending. Smartbiz’s CARES ACT portal is not done yet, but you can go there put in business and personal contact information and accept their terms of service to get in their system. Alternatively, you can wait until later in the week when their CARES loan portal will be operational.
The key in our opinion is a lender who can get the loan done very quickly as the terms of the loans for everybody doing CARES ACT SBA 7(a) loans is the same.
What can I do to be ready for April 3rd or April 10th?
1. Make sure you understand the program. The U.S. Chamber of Commerce put together a wonderful document called Coronavirus Emergency Loans checklist. Note that the checklist applies to CARES Act SBA 7(a) loans. Also, Treasury today issued a great set of FAQs about the CARES ACT SBA 7(a) Paycheck Protection Program (PPP).
Another disaster relief option is Economic Injury Disaster Loans (“EIDL”). Unlike CARES Act loans, which are facilitated through financial institutions, EIDL loans are done directly through the SBA. You can read about EIDL loans on the SBA website. We can’t tell you which program is better for your business, but we can say over 95% of the inquires we get at SbaLenders.com currently relate to the CARES Act loans as these loans may be forgivable whereas EIDL loans are not.
2. Have your documents ready
What documents do I need to apply?
Most likely some or all of the following:
1. SBA Borrower PPP Form. Required for all CARES Act SBA 7(a) PPP loans regardless of financial institution. Please read and complete prior to Friday.
2. Payroll returns. The primary motivation of the CARES Act SBA loans was for employee retention. You will likely be asked for documentation from payroll tax returns filed to federal and/or state governments to verify the average payroll costs for purposes of determining your maximum loan amount.
3. Calculation of number of FTEs and payroll cost. There are pre- and post-loan calculations of payroll costs and total number of employees (FTEs) used to determine how much of your loan is forgiven. Initial payroll costs and FTE calculation are based on 2019 for non-seasonal businesses, 2/15/19 to 6/30/19 for seasonal businesses, and 1/1/20 – 2/29/20 for new businesses.
4. Calculation showing reductions to payroll cost. Salaries above $100,000 (annualized) for any employee are excluded. So, if you had two employees with salaries of $80,000 and $120,000, the CARES Act calculation would be $180,000 in total salaries. In addition, non-U.S. residents compensation is excluded, as well.
5. After the loan closes, you will need to provide documentation for not only payroll costs but also rent, leases, and mortgage interest.
What are the key loan terms?
- Interest rate of .5%
- Maturity in 2 years
- No collateral or personal guarantees
- No payment for six months and no fees paid by borrower
- All or a portion of the loan may be forgiven based on payroll and other fixed expenses during the 8 weeks after loan issuance
Could the money through this program run out?
Congress allocated $349 billion for this program. In theory the money could run out as it is done on a first come, first serve basis. Don’t want to scare anyone by any means but do think speed is critical. We can tell you the average requested CARES Act loan over the past week on SbaLenders.com is $200,000. If there are 30 million small businesses and only half of those want loans, that is $3 trillion dollars. Maybe those numbers are off, but regardless $349B doesn’t sound like much spread over 30 million potential applicants.
If the money does run out, there is always the possibility that Congress increases the limit. However, that would literally take an act of Congress and no businessperson wants to rely on Congress to get back in business.
Is SbaLenders.com part of the Small Business Administration and how do you make money?
We are not part of the SBA. We are a small business that introduces borrowers to SBA approved banks. We list hundreds of SBA-approved lenders along with recent SBA loan activity to help inform. We don’t provide funding ourselves. We are simply an information source for borrowers and a referral source for banks.
We have agreement with financial institutions where they sometimes pay us a fee for business we refer to them. We do not charge you as the borrower. Also note that the law mandates that banks do not charge fees on CARES Act SBA loans (sometimes they do charge borrowers fees on traditional SBA loans).