The Paycheck Protection Program – a lifeline for small businesses – stopped taking applications on Aug. 8, and Congress is still fighting over the next stimulus bill as well as where remaining funds in the PPP program will be spent.
The forgivable PPP loans were responsible for a “majority” of the jobs created since May, Small Business Administration Administrator Jovita Carranza has said. Since the program launched in early April, more than 5.2 million loans worth about $525 billion had been distributed. There’s roughly $135 billion remaining in the fund.
Yet nearly half of small business PPP loan borrowers anticipate requiring more financial support over the next year, according to a recent National Federation of Independent Business survey. What’s more, 23% of small business owners reported they would have to shut down if current economic conditions did not improve over the next six months, the NFIB survey said. Fully 22% of owners said they would be able to operate no longer than 7 to 12 months under current economic conditions.
Data from Yelp, the online reviewing site, shows that more than 60,000 small businesses permanently shuttered from March 1 to July 25. While the businesses are small individually, the collective impact is big. Firms with fewer than 500 employees account for 44% of U.S. economic activity, says an SBA report. They employ nearly half of all American workers. And in Miami-Dade, an inordinate share of small businesses comprise the local economy: 81 percent of the county’s 73,764 firms employ fewer than 10 people, according to a 2018 report for FIU’s Metropolitan Center and Florida SBDC at FIU.
Fortunately for small businesses, other loan and finance options are available for business owners in need of aid during this ongoing coronavirus pandemic.
Let’s look closer at some of the sources:
EIDL (Economic Injury Disaster Loan) Program
Small businesses can still apply for the SBA’s Economic Injury Disaster Loan (EIDL) program. The loans are not forgivable – they must be paid back. But they are attractive because they offer low-cost loans to provide working capital for private businesses and non-profits that have suffered substantial economic impact from the COVID-19 crisis.
The terms: Loans are available for terms of up to 30 years, with payments deferred for the first year. EIDL;s program charges interest rates of 3.75% for businesses and 2.75% for non-profits.
The EIDL Advance program (for grants) closed in July after disbursing its $20 billion allotment.
Main Street Lending Program
The Federal Reserve launched the Main Street Lending Program in June and recently extended the program to Dec. 31. Designed to assist larger small businesses, the MSLP offers five-year loans of $250,000 to $300 million. The MSLP program is aimed at companies with up to $5 billion in annual revenue or fewer than 15,000 employees.
So far, the program has not been popular with banks, although one community bank in South Florida has been actively making loans. According to the South Florida Business Journal, only eight companies nationwide had received loans through program as of late July and six of them were funded by Miami-based City National Bank of Florida. The loans ranged from $1.5 million to $5.5 million.
MSLP business loans charge interest rates pegged to the benchmark LIBOR rate, plus an additional 3%. At recent LIBOR rates, interest rates on MSLP lending would be just over 3.16%. Payment of principal is deferred the first two years, while payment of interest is deferred the first year. In years three and four, 15% of the principal loan plus interest.. The remaining 70% plus interest is due in the final year.
MSLP loans include a requirement that companies make “reasonable efforts” to retain their employees during the loan term. But the Fed has made some improvements since the Main Street loans were first introduced. The minimum loan amount dropped to $250,000, and the loan repayment term extended from four to five years.
Seventeen banks operating in Florida – including Miami-based City National Bank, Apollo Bank and Executive National Bank – have registered to participate in the MSLP, according to the Business Journal.
FIND OUT MORE: View a new SBDC at FIU Webinar on the Main Street Lending Program here:
SBA’s 7(a) loan program and others
The SBA has a number of small business loan programs, beyond the ones funded by the CARES Act. Its 7(a) is the agency’s flagship working capital loan program, and the most popular by far. What’s more, if you close on any SBA loan before Sept. 27, your first six months of payments will be forgiven. Its website states: As part of its coronavirus debt relief efforts, the SBA will pay 6 months of principal, interest, and any associated fees that borrowers owe for all current 7(a), 504, and Microloans in regular servicing status as well as new 7(a), 504, and Microloans disbursed prior to Sept. 27, 2020. It will be automatically applied.
The 7(a) loan program allows you to borrow up to $5 million, with a 10-year repayment period. Loans for equipment or real estate could be extended to 25 years.
To be sure, 7(a) loans have fees and interest rates than the PPP. Fixed rates are capped at 6%. The 7(a) loan program allows you to borrow up to $5 million, with a 10-year repayment period. Loans for equipment or real estate may be extended to 25 years.
Also, while lenders don’t require collateral for loans up to $25,000, for amounts in excess of $350,000 the SBA traditionally requires the lender to collateralize the loan to the maximum value possible — and that may include requiring a person secure his or her loan with personal assets.
There are several more SBA loan programs. Many people don’t know about the 504 loan but it is often a less expensive option if the loan is for real estate, facilities or equipment. The Export Express loans help small businesses develop or expand their export markets with streamlined financing.
Here’s a look at maximum loan amounts for these programs.
For loans up to $5 Million: 7(a), CapLines, Export Working Capital Program, International Trade, 504 loans.
Up to $2 Million: Disaster loans
Up to $500,000: Export Express loans
To $350,000: 7(a) Small Loans and SBA Express loans
To $250,000: Community Advantage
And up to $50,000: Microloans
Community Development Financial Institution (CDFI) loans
Community Development Financial Institutions are charged with helping low-income communities get access to credit. Certified CDFIs are eligible for funding from the U.S. Department of the Treasury’s CDFI Fund.
CDFIs include credit unions, banks, loan funds, and venture capital funds. There are thousands of CDFIs around the country. Businesses interested in pursuing a CDFI loan can search the CDFI’s database to review current programs in their area. In South Florida, Miami Bayside Foundation, Accion and BBIF are among the providers of CDFI loans.
One of the offerings is the Rise Miami Fund. The Dade County Federal Credit Union is administering the county program, in partnership with Accion, BBIF and Miami Bayside Foundation. Loans up to $30,000 at 3.25% interest are available to eligible Miami-Dade small businesses.
Employee Retention Tax Credit
If you haven’t received PPP loans and you either had to shut down or have suffered a significant loss in sales as a result of the pandemic, you can still apply the Employee Retention Tax Credit (ERTC). The refundable tax credit is now equal to 50 percent of up to $10,000 in annual wages for each eligible employee. That includes the employer portion of health benefits.
There is interest in changing the rules governing this program to potentially include companies that have already tapped the PPP, but it hasn’t been done yet.