Finances and Taxes

All Small Business Loans in the New COVID-19 Relief Package

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Update on January 13, 2020: Applications for PPP loans are open.

Currently, the SBA portal is open only to CDFI lenders for both first- and second-draw loans.

The portal will open to all other lenders shortly after.

Other lenders may be accepting applications, but those applications won’t be processed until the SBA portal opens to all lenders.

The Consolidated Appropriations Act, 2021, passed at the end of December 2020, included $900 billion funding for coronavirus pandemic relief efforts. While the Paycheck Protection Program (PPP) is getting the most media play, there are several loan options under the new bill that may be worthwhile for small business owners.  

We’ll go through them here. 

Funding for SBA loans under the new bill, at-a-glance 

Only got a few minutes? Here’s a high-level view of the funding programs for small business loans within the new bill (for substantive details, read the whole post):

  • $2 billion has been allocated to the SBA to enhance lending programs
  • $3.5 billion has been allocated for SBA debt relief payments on 7(a) and Microfinance Loans
  • The SBA will continue to cover principal and interest payments for 7(a), 504, and Microloans: new loans will be covered for six months, and loans approved before March 27, 2020 will get nine months of coverage (capped at $9,000 per month) 
  • SBA 7(a), 504, and Microloan borrowers who are underserved will receive an additional five months of principal and interest payment coverage
  • All lender and borrower fees are waived for 7(a) and 504 loans
  • The loan guarantee amount on Standard 7(a) Loans has increased to 90 percent until October 1, 2021
  • 7(a) Express Loans $350,000 and under will be guaranteed at 75 percent until October 1, 2021
  • The 7(a) Express Loan maximum has increased to $1 million until October 1, 2021
  • Reciprocity for refinancing between 7(a) and 504 loans has been created
  • A new 504 Express Loan Program has been established 
  • The SBA Microloan program has been enhanced to increase access by extending repayment periods, increasing lender maximums, and waiving certain limitations
  • $20 billion has been allocated to disburse EIDLs to small businesses in low-income communities
  • The EIDL $10,000 grant advance program is back, and will be targeted to small businesses that need it most 
  • The Paycheck Protection Program (PPP) has been extended through March 31, 2021
  • Eligibility requirements have been expanded for PPP
  • Second-draw loans are available for PPP
  • The list of forgivable loan expenses under PPP has been expanded
  • The PPP is not taxable and expenses paid with loan proceeds are deductible
  • Money within PPP and also outside of PPP under the new bill has been set aside for community lenders, including CDFIs and MDIs
  • New methods have been put in place to decrease fraud and enhance the integrity of SBA loan programs

Ready to dive in? Let’s get into all your loan options under the new bill. 

The Small Business Administration (SBA)

The U.S. Small Business Administration (SBA) is a government organization aimed at helping entrepreneurs and small business owners launch and grow their businesses across the country. While the SBA does not actually disburse loans, the organization plays a critical role in helping small businesses get access to capital by:

  • Connecting borrowers with the right lenders,
  • Guaranteeing loans to increase borrowing power (how much the business owner can borrow); and 
  • Providing government funding to lenders. 

SBA provides many loan programs, and under the new bill, funding was provided to support the following programs:

  • 7(a)
  • 504
  • Microloans
  • CDFIs, MDIs, and community lenders
  • EIDL
  • PPP

Find out which one(s) could be right for your business. 

What is an SBA 7(a) loan?

The 7(a) loan program is the largest loan program offered by the SBA—and has been around since well before the pandemic. Chances are, if you need a small business loan from the government, this is the one you’ll get. Within the 7(a) program there are several loan types including the Standard 7(a), 7(a) Small Loans (for loans under $350,000), SBA Express Loans, SBA Express Bridge Loans, and more.

7(A) eligibility and interest rates

Eligibility requirements for SBA 7(a) loans include:

  • For-profit businesses based and operating in the U.S. (or its territories)
  • Businesses with fewer than 500 employees
  • Businesses with “reasonable” owner equity
  • Businesses that have made less than $7.5 million in average annual revenue (each year over the past three years) 

While interest rates vary depending on the lender, they are capped at a maximum determined by the SBA.

Community Advantage

The Community Advantage (CA) program is intended to help small businesses in underserved and low-income areas access 7(a) loans. This program enables lenders who are mission-oriented and dedicated to helping BIPOC communities by providing funding; the CA program also increases technical assistance (training programs for small business owners that are delivered by lenders). Under the new bill, additional funding has been provided for the CA program

What government funding has been provided for SBA 7(a) loans under the new bill?

Let’s get into it. Under the Consolidated Appropriations Act, 2021, the government has stepped in to provide financial assistance to 7(a) borrowers and implemented more flexible limits. 

For all 7(a) loans, borrowing fees have been waived, and reciprocity has been created with 504 loans, which means that one loan can be used to refinance another. Most importantly, the SBA will cover principal and interest payments for 7(a) loans for a period of time; more details on that later . . .  

What else has changed under the new bill?: 

Before the new bill, a Standard 7(a) Loan was:Under the new bill, a Standard 7(a) Loans is:
  • Capped at $5 million
  • Guaranteed by the SBA at 85 percent for loans $150,000 and under
  • Guaranteed by the SBA at 75 percent for loans over $150,000
  • Subject to borrower fees
  • Capped at $5 million (no change)
  • Guaranteed by the SBA at 90 percent until October 1, 2021 (this includes Community Advantage Loans)
  • Not subject to borrower fees; these fees are waived
Before the new bill, an Express 7(a) Loan was:Under the new bill, an Express 7(a) Loan is:
  • Capped at $350,000
  • Guaranteed by the SBA at 50 percent
  • Subject to borrower fees
  • Capped at $1 million until October 1, 2021
  • Capped at $500,000 as of October 1, 2021
  • Guaranteed by the SBA at 75 percent for loans of $350,000 and under
  • Remains guaranteed by the SBA at 50 percent for loans over $350,000
  • Not subject to borrower fees; these fees are waived

What is an SBA 504 loan?

SBA 504 loans (sometimes known as CDC loans) are for small business owners who need funding for a single, big purchase of fixed assets like:

  • Land
  • Real estate
  • Equipment
  • Machinery 

504 loans are capped at $5 million and interest rates vary depending on the lender (but are subject to maximums set by the SBA). 

What government funding has been provided for 504 loans under the new bill?

Under the Consolidated Appropriations Act, 2021:

  • All borrower fees for 504 loans have been waived
  • Reciprocity has been created between 7(a) and 504 loans so that one loan can be used to refinance the other
  • The best part: the SBA will cover principal and interest payments, along with any other loan fees, for a set period time; again, more on that later . . .

The new bill also grants authority to the SBA to establish a 504 Express Loan Program for the most experienced and successful lenders to expedite 504 loans of less than $500,000 to borrowers. This will give 504 loan recipients access to funds sooner. 

SBA Microloans

Business owners in search of smaller loans can find funding with the SBA Microloans program, which offers loans between $3,000 and $50,000. SBA approved Microloan lenders are often non-profit, community-based institutions with experience in lending, management, and technical assistance for small business owners.

While loan terms, requirements, and interest will vary among lenders, borrowers will typically be expected to put up collateral against these loans.  

SBA Microloan technical assistance

The Microloan program includes more than just funding; the program offers technical assistance and training for new, small businesses. Lenders who participate in the Microloan program may receive technical assistance grants from the SBA to assist with the costs of providing this training for new businesses. Under normal circumstances there are strict guidelines on the amount of technical assistance grants lenders can receive, but the new bill offers more flexibility. 

What government funding has been provided for SBA Microloans under the new bill?

The new bill has allocated $57 million for the SBA Microloan program. These funds are meant to enhance the program, increasing access and technical assistance for businesses impacted by COVID-19. 

The new bill:

  • Temporarily increases the amount of time a borrower can repay a Microloan from 6 to 8 years 
  • Temporarily increases the total amount each lender may borrow from the SBA from $6 million to $10 million; this will allow lenders to deploy more Microloans to small businesses 
  • Provides $50 million in additional funding for technical assistance funding for lenders
  • Allows lenders to access more technical assistance funding if they serve rural areas
  • Reduces red tape for lenders by temporarily waiving the limitations for technical assistance grants and (temporarily) eliminating the 50 percent limitation on pre-loan technical assistance

Also, just like in the 7(a) and 504 programs, principal and interest payments will be covered by the SBA for a set period of time. Details are next up . . .

Principal and interest payment coverage for 7(a) loans, 504 loans, and Microloans

This may be the best part of the bill, so pay close attention! 

Under the CARES Act, the SBA covered six months of principal and interest payments—as well as any fees associated with the loan—for:

  • All 7(a) loans (including Standard 7(a) Loans, 7(a) Express Loans, and Community Advantage loans)
  • 504 loans
  • Microloans

The new bill has resumed this program for all loans approved between February 1, 2021 and September 30, 2021, but the monthly principal and interest payments covered by the SBA will be capped at $9,000 per month.  

7(a) loans, 504 and Microloans approved before March 27, 2020, will get an additional three months of coverage (bringing it up to nine months), capped at $9,000 per month. Once those nine months have been exhausted, borrowers who are considered underserved, and those hit hardest by the pandemic (including food service, hospitality, arts, entertainment and recreation, education, laundry services, spa and personal care services) will receive an additional five months of coverage. The small print: if government funds run out, this five-month period may be truncated. 

Borrowers will not have to apply for this principal and interest payment coverage—the SBA will automatically apply these payments (lenders have been instructed to stop collecting loan payments from borrowers), but the payments will begin only once the loan is fully disbursed. 

Keep in mind that if a borrower has borrowed multiple loans, the principal and interest payments covered by the SBA will only apply to only one of those loans

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CDFIs, MDIs, and community lenders

Data on how the CARES Act affected the country  and on how the first round of PPP loans were distributed revealed that many small businesses owned by people of color were unable to take advantage of government financial relief programs. The new bill aims to address and repair this by allocating funding to support BIPOC businesses and small businesses that operate in low-income areas. 

Dedicated funds have been set aside for CDFIs and MDIs. A Community Development Financial Institution (CDFI) is a financial institution (certified by the U.S. Treasury Department) that is dedicated to serving low-income and disadvantaged communities by committing to responsible lending practices. And, a Minority Depository Institutions (MDI) is a bank or credit union that is owned or managed by a person of color. Both CDFIs and MDIs play a critical role in helping to resource underserved communities and in creating economic opportunity. 

Under the new bill, $2 billion of PPP funding is dedicated to CDFIs; however, even if a PPP isn’t right for your business, CDFIs and MDIs have also received $10 billion in capital injections that can be used at the institution’s discretion—including to fund non-PPP loans. Learn about how CDFIs and MDIs can help your business gain access to capital here.

The new bill also included $25 million for the Minority Business Development Centers program under the Minority  Business Development Agency (MBDA), which has centers in cities all over the country aimed at helping BIPOC-owned small businesses.  

Economic Injury and Disaster Loan (EIDL) 

For everything you need to know about the EIDL program, read this comprehensive guide. But, we’ll give you the footnotes real quick: EIDL helps small businesses survive disasters by providing capital to cover business and operating expenses.

Quick facts: 

  • The maximum loan amount is $2 million
  • The interest rate is fixed at 3.75 percent for for-profit businesses and 2.75 percent for non-profits
  • The loan term is 30 years 
  • The loan is not forgivable

Under the new bill, $20 billion has been allocated to helping businesses in low-income areas get access to EIDL funds (both the advance grant and the loan). Here are the high-level details (but you should really read that comprehensive guide we mentioned above):

  • The $10,000 grant advance program has been re-established and will be available to eligible applicants in low-income communities who did not secure grants the first time around.
  • Borrowers in low income areas who have already received an EIDL advance under $10,000 are eligible to receive a second advance that is the difference between the first advance and $10,000. (So, if a business owner received a EIDL advance of $6,000 the first time around, that business owner is eligible to receive another advance of up to $4,000.)
  • Grants are not considered gross income and cannot be taxed (but the loan is subject to taxes).
  • PPP recipients are also eligible for EIDL and vice versa. 
  • PPP recipients who receive EIDL grants no longer have to deduct the grant amount from the PPP forgiveness amount.
  • If a borrower received both a PPP loan and an EIDL, and they have received forgiveness on the PPP loan, but the EIDL amount was deducted from the forgiven PPP amount, then the borrower can now be forgiven for the EIDL amount, as well. Whew!
  • PPP borrowers who are not eligible for PPP forgiveness may still be eligible for an EIDL advance.  
  • The covered period has been extended through December 31, 2021.

Paycheck Protection Program (PPP): Round 2 

Applications for PPP loans will open the week of January 11, 2021.

Keep in mind: there will be some time between loan application and funding.

The SBA portal will first be open to lenders who disburse PPP to underserved borrowers (like CDFIs, MDIs, and community lenders).

The portal will be open to those lenders for first-draw loans from January 11 – January 13 and for second draw loans on January 13.

The portal will open to all other lenders shortly after.

$284 billion was provided to SBA to extend the Paycheck Protection Program (PPP) through March 31, 2021. You can read the comprehensive overview of PPP Round 2, or just get the updates at-a-glance: 

Under the new bill small business owners have a number of loan options, so if you find that PPP or EIDL simply don’t suit your needs—or if you’ve been denied—it may be wise to try a different loan. 

For more COVID-19 resources, see the COVID-19 Small Business Resource Hub

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Updated: January 13, 2021

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