With the current events surrounding COVID–19, the federal government recently announced an Economic Injury Disaster Loan assistance program. The program is being offered in designated states and territories across the U.S. This SBA loan is for businesses who are suffering substantial economic injury as a result of the Coronavirus (COVID–19).
These loans have very low-interest rates and are being given with the intent of helping small businesses with working capital. Offering up to $2 million in assistance, an SBA loan can provide support to small businesses that are struggling because of the economic crisis. Interest rates are 3.75% for small businesses without credit available elsewhere. And for non-profits, the interest rate is 2.75%. Below we will discuss what an SBA loan is and how it can help your small business.
What is an SBA Loan?
The United States Small Business Administration (SBA) offers certain financing options to small businesses. These loans are not directly offered from the agency, but rather through partnering lenders. These may include banks, credit unions, and other financial institutions. Because the loans are backed by the SBA, it reduces the risk for lenders making it easier to lend capital. There are a variety of loan programs that tailor to the different needs of growing businesses.
SBA Loan Options
Loans guaranteed by the SBA can range from very small to large. Depending on your needs, your lender can match your company with the right type of loan. There are a variety of uses for SBA loan including working capital and fixed assets.
- Working Capital: If you need immediate working capital, the Economic Injury Disaster Loan program is specifically designed for this. You can use the loan to pay for fixed debt, payroll, accounts payable, and other bills due soon.
- Fixed assets: An SBA loan can also help with the purchase of real estate, machinery, equipment, and construction and remodeling costs.
Each lender and each loan program has unique requirements. Typically, a lender looks at how the business receives income, the ownership structure, and the location of the business. Businesses should be able to repay and have a sound business purpose. Even those with bad credit may qualify for funding. In addition, the business must be officially registered and operating legally. Talk with a lender to determine a full list of eligibility requirements for your loan.
Benefits of an SBA Loan
- SBA-guaranteed loans generally have lower rates and fees. They also tend to have long-term repayment options to keep payments affordable. Lenders determine the terms on a case-by-case basis and consider each borrower’s ability to repay.
- SBA loans have lower down payments, flexible overhead requirements, and sometimes require little or no collateral.
- The SBA program also offers continual support to help you start and run your business. They have 68 District Offices and several Resource Partners across the country.
With low-interest rates and flexible terms, the SBA program is one of the smartest ways to fund your company. If you are specifically struggling because of events surround COVID–19 you may be able to easily qualify.