Business Financing Now That PPP Has Ended

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Now that the Paycheck Protection Program is over, small business owners might be wondering what options exist.

The reality is that there have always been other financing options, but you may not have been aware of them prior to the COVID pandemic. 

Similar to the way the PPP funds were issued by the Small Business Administration (SBA) to participating lenders (which were then issued to borrowers), the SBA has a range of loans available to those wanting to start or grow their business.

SBA business loans typically have low down payments and are suitable for a wide range of business needs. Through the SBA, financial institutions and other lenders are able to offer loan options to consumers that range in amounts from $500 to $5 million with loan terms generally between 5-25 years.  

Types of loans available through the Small Business Administration:

  • Micro Loans
    Micro loans are multi-purpose loans. They can be used to start or expand a business or to buy equipment such as machinery or supplies. They can also be used to infuse much needed working capital into a company. They cannot be used for buying real estate or paying off debts you already have.

    Loan amounts range from $500 up to $50,000 and are repayable in up to 6 year terms. There are no fees associated with this loan and the interest rate is set by a nonprofit microlender who administers these loans for the Small Business Administration. 

    An advantage to working with a microlender is that they also offer other resources to the small business owner. In addition to low interest loans, they can also be resources for, training and a gateway to building credit and obtaining bank financing.

    To obtain a Microloan, a lender will require collateral and possibly the personal guarantee of the business owner. They will also work with you to determine eligibility by reviewing your financials and your business plan.

  • SBA CDC/504 Loans
    SBA CDC/504 loans are sought for the purchase or renovation of major fixed assets like real estate and equipment. With loan amounts of $5 million or higher, CDC/504 loans can be complex but they offer very competitive interest rates and can be a good option, as long as you have a specific business purpose for the loan. 

    A CDC/504 loan is structured so that three parties are involved;  50% of the funds come from the bank, 40% come from a CDC (certified development company) and the other 10% is the borrower down payment. The interest rate on the loan is determined by the lender and the CDC. 

    To obtain this loan, you not only have to meet the Small Business Administration requirements but you must also meet program specific requirements, such as 

    • Owner Occupancy of at least 51%

    • Project must create or retain jobs or meet community development goals

    • Net Worth of no more than $15 million and a net income of $5 million or less    

CDC/504 loans have repayment terms that start at 10 years and can go up to 25 years. A loan term for the purchase of equipment, furniture, or machinery is likely going to be 10 years. The longer terms, of 20-25 years, are usually reserved for the purchase or renovation of land and buildings.

  • SBA 7 (a)
    SBA 7 loans offer general business financing for loan amounts up to 5 million dollars. The fees are typically 3% of the loan amount, which may consist of a guarantee fee by the SBA and an origination fee by the lender, among other miscellaneous fees. You may also be required to put 10% of your own funds down to qualify. 

    Repayment terms on these loans are different depending on the purpose of the loan but are typically between 10-20 years. Terms for machinery/equipment can be up to 10 years, real estate up to 25 years and 7-10 years for capital.

    Interest Rates on SBA 7 loans can be either fixed or variable. The interest rate you receive is decided by the Lender who must comply with the Small Business Administration’s guidelines.

    There are several different types of SBA 7 (a) Loan products:

    • Standard 7 (a) Loan
      Maximum loan amount up to $5 million

    • SBA Express Loan
      Maximum loan amount $350,000

      Response from SBA is guaranteed within 36 hours for quicker approval

      Revolving lines of credit up to 7 year terms

A streamlined process for exporters and lenders to make loans and lines of credit

Quick turnaround

Lines of credit not to exceed 7 years

    • Export Working Capital
      Loan amount up to $5 million

      For businesses generating export sales that need additional working capital

      Lines of credit with terms of 12 months or less

Maximum loan amount of up to $5 million

SBA CAPLines Line of Credit

There are 4 types of CAP lines available through the SBA. 

Loans can be revolving or non-revolving lines of credit. 

Loan maturity is set at 10 years with the exception of the ‘Builders’ line of credit, which is 5 years. 

The four types are:

Seasonal Cap Line - Proceeds to be used for seasonal fluctuations in labor and inventory costs

Contract Cap Line - Covers direct labor and costs of a contract

Builders Cap Line - Financing costs directly related to a building or renovation project

Working Cap Line - Line of credit for businesses that need to turn assets into cash but don’t qualify for traditional long term credit.

Eligibility & Requirements

The Small Business Administration sets guidelines for Lenders but each loan may have different eligibility requirements. Typically a business owner will need to demonstrate an ability to repay, business soundness and credit worthiness.

In addition to the loan application, you will also be asked to provide documentation that usually includes:

  • Your business plan, including how you intend to use the loan proceeds
  • Profit Loss statements
  • Business & Personal Tax returns
  • Bank statements

Small business loans may require a lot of paperwork, can take a long time to approve, and may require collateral. Collateral could include personal guarantees by owners, real estate and fixed assets.

The SBA also requires that the business:

  • Owner has invested Time/Money into the business
  • Meets their definition of a small business
  • Be for-profit
  • Is officially registered
  • Located and Operating in the US
  • Have exhausted other avenues for financing 

Why lend to businesses?

Because it’s good business! Lending needed funds to entrepreneurs and business owners has positive impacts, such as job creation and it also spurs the economy to grow. This is why the SBA, a government agency, is interested in guaranteeing business loans and setting lending guidelines to protect consumers.

Small Business Administration loans are not one size fits all.  There are multiple options designed to cover the different needs of various businesses,  whether it's a large influx of capital or a line of credit to complete a project. 

A qualified lender can help you to determine eligibility and find a product that works for you.

For more information or to find a Small Business Lender in your area, visit the Small Business Administration's website at www.sba.gov and use the Find Lender search tool.  Or contact your current banking partner.

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Hi there! This post exists to offer you (hopefully) useful information but it cannot take the place of personalized professional advice. Please consult a qualified expert if you have questions about your business. Also, Azlo doesn’t endorse any third-party sites that are linked here.

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