Opinion: Small Business Administration’s relaxed loan terms offer a silver lining for small businesses
The dominant narrative around US small businesses throughout the pandemic has been pessimistic rhetoric. But there is another side to the history of small business that is emerging. A story of determination, perseverance and new opportunities.
Many companies have shown incredible creativity and ingenuity to take advantage of the opportunities arising from the pandemic and are shifting into growth mode as a result. Maybe they’ve invested in new technology to adapt to a contactless world or they’ve moved a production line to make hand sanitizer or protective gear. As a result, they are now prosperous and need capital to grow.
The good news is that these companies have very attractive financing options through the Small Business Administration (SBA) thanks to the stimulus package adopted in December. The bill improved three key loan programs that are part of the traditional SBA offerings, creating very generous loan terms. Many companies should think about how they can take advantage of this.
The changes to these programs went into effect on February 1 and have not received publicity for the expansion of the paycheck protection program. Plus, these provisions are only in place for a limited time – until September – so business owners need to act quickly.
For SBA’s traditional 7 (a) loans, companies borrowing less than $ 4.15 million can now get a government guarantee of up to 90% of their loan amount, allowing banks to approve more. easily the loans from the SBA. But there are several changes that directly benefit borrowers. The first is that the guarantee fees were waived, saving up to $ 150,000 on larger loans. In addition, the SBA will cover three months of principal and interest payments on any loan approved by the end of September, up to $ 9,000 per month.
Any business that sees growth opportunities right now should seriously consider an SBA 7 (a) loan.
Take a restaurant business client I know who was shut down by the first wave of COVID-19, but has since transformed into a delivery-only service and redeployed its servers to become delivery drivers. After looking the disaster in the face, the company’s year-end revenue remained roughly the same as in 2019. Its main challenge now is reaching more customers, so the restaurant is considering adding “ghost kitchens” to meet demand. This is exactly the kind of candidate that the new rules are designed to benefit.
Another offer from the SBA that has become much more generous is Express Loans. These lines of credit were previously capped at $ 350,000 and backed by a 50% government guarantee.
Now they go up to $ 1 million and lines up to $ 350,000 can get a 75% government guarantee. As with 7a loans, the guarantee fee is waived and the SBA covers the first three months of interest payments. This offering is best suited to growing businesses that need working capital to overcome short-term obstacles. They may be dealing with buyers who don’t pay as quickly as usual, or they may have to purchase more inventory in advance due to delays in the supply chain.
The third channel where businesses can reap new benefits is the 504 loan program. Typically, these loans are used for the purchase of owner-occupied commercial real estate or for the purchase of manufacturing equipment. The SBA is now waiving a 1.5% commission on its share of the loans, plus a 0.5% commission that must be paid by the bank. The SBA will also pay the first three months of principal and interest.
A 504 loan is best suited for businesses looking to expand by purchasing real estate, but will soon be available for businesses needing to refinance an existing loan on owner-occupied property. The refinance program could become an excellent choice for businesses that experience a drop in property values as their conventional loan matures, which could affect businesses that own their retail business or offices in the months to come. to come.
As many states begin to reopen as vaccinations increase and COVID-19 rates decline, small businesses that have survived the pandemic are considering reinvesting in their businesses.
After such a difficult year, it’s encouraging to see SBA lending policies that will help businesses thrive. Based on the ingenuity and dynamism that I have seen over the past 12 months, businesses are sure to take advantage of these offerings and accelerate their growth.
Mark Abell is senior vice president and SBA division manager at NBH Bank, which serves clients through the Community Banks of Colorado, Bank Midwest and Hillcrest Bank.