April 7, 2020

Edited 05/04/20

How to Qualify for an SBA Loan Due to COVID-19 Impact

Was your business impacted by COVID-19? We explain how you can qualify for a loan and resources dedicated to small business like Nav that can support your loan process.

Many small businesses impacted by COVID-19 spread were either forced to shut down because their business is considered non-essential or saw fewer customers compared to normal. As utility bills, employee wages, and rent piles on, many business owners are facing difficulty managing their finances with the subpar income they’ve generated. Separately, owners nearing retirement may now have to take a step back and delay their retirement to sustain their business and finances. With the economy at a halt, the CARES Act aims to help by making SBA loans more accessible due to COVID-19 impact. Does your business qualify for an SBA loan?

What will the CARES Act provide for small businesses?

The CARES Act created $350 billion in additional loan capacity for borrowers through the Small Business Administration. The program is known as the Paycheck Protection Program and is an expansion to the 7(a) loans typically available for small businesses. With the CARES Act, the rules to qualify for these loans have been relaxed which will expand their availability. These loans are available through June 30th, 2020.

Through the SBA, there is another loan and grant program available which is known as EIDL or Economic Injury Disaster Loans.  While we are only focusing on aspects of the Paycheck Protection Program, you can visit SBA.Gov for more information on the EIDL program. In addition to SBA, states established available programs for small businesses.

Loans under the Paycheck Protection Program, are designed to cover overhead costs for maintaining your business. You can use the proceeds to cover the following expenses:

  • Payroll costs
  • Group healthcare benefits
  • Insurance premiums
  • Rent 
  • Employee compensation
  • Utilities
  • Mortgage interest payments
  • Interest on debt

The Paycheck Protection Program FAQs For Small Business Owners

Who is Eligible for a Paycheck Protection Program loan?

To qualify for the loan you must be a small business as defined by the SBA. This would include organizations with fewer than 500 employees. It also can include sole proprietors and independent contractors as well as private non-profits.

How Much Can You Qualify for Under This Program?

Loans made under this program can be for the lesser of $10 million or 2.5x the average monthly payroll cost over the prior twelve months. If you need help determining how much you might be eligible for, we recommend that you utilize online calculators like Nav. By answering four simple questions, Nav will calculate how much you may qualify for.

When Will You Get This Loan?

The date you receive your loan can vary by lender. Banks, credit unions and some online lenders are working quickly to make these loans available to businesses. It is important to note that SBA is not making the loans. They are simply guaranteeing the loans to lenders. You will need to work with your local bank or credit union to apply and receive your funding. 

Does the CARES Act Provide Loan Forgiveness?

Under the terms of the Paycheck Protection Program, it provides an eligible borrower with loan forgiveness. If the amount of the loan was used to cover overhead costs, mentioned earlier, then the loan may be forgiven subject to certain exceptions. However, the costs must be documented within the eight-week period from the loan start date in order to be forgiven.

What Are the Other Important Loan Details?

Unlike typical SBA loans, collateral and a personal guarantee are not required to receive this loan. The loan is known as a non-recourse where the government will not be able to collect if you default on the loan. However, the loan proceeds must be used per the Paycheck Protection Program guidelines. Finally, the interest rate is capped at 1% for borrowers and lenders are delaying repayment of the loan for 6 months.

Preparing for Your Loan Application

There are a few things you need to prepare before you start your loan application process. First, gather all your payroll documentation which includes employee compensation, the number of full-time employees, and etc. If you do not have access to these documents, you may need to involve your bookkeeper or accountant. Also, become an expert on your financial picture. Understand where your business stands through numbers such as overhead costs, debt payments, and operating capital. While being aware of your total financial picture is always advisable, it will become extremely important when you apply for forgiveness of your loan.

What Resources Do You Have?

Going through the process of applying for this loan can seem overwhelming. Luckily, there are many resources available dedicated to helping small businesses like Nav. Nav is a free, digital platform for small business owners to get access to financing. In response to the impact COVID-19 had on small businesses, Nav created a streamlined process to apply for SBA COVID loan

As the terms are rapidly changing, it’s important to stay up-to-date with the current process. SBA.gov can give you the latest news and information on the Paycheck Protection Program. Nav is also following the details of this program closely as well as staying in close contact with the SBA.

While these are difficult times for businesses, understanding your options for funding to keep your business going is critical. This program, along with other stimulus programs, will help keep people employed and will give businesses the ability to participate in a potential economic recovery.