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Big Banks Set Up $350 Billion Small-Business Loan Program for Customers

buildingsAmerica contributes a larger percentage in the world’s economy. It generates and earns more than 20 percent of the world’s total income. Last month, the country was hit by the global pandemic that extremely affected various businesses. COVID-19 cases in America are rapidly increasing and continuously growing, leaving ten thousand deaths and three hundred sixty thousand plus cases. This impacts overall business around the country which greatly affects small businesses and people suffering from unemployment.

To immediately resolve the business crisis, Last March 27th, the Congress created a $350 billion fund to keep the workforce employed amidst the pandemic signed by President Donald Trump. This is the coronavirus relief package or also known as the CARES Act. Under this new loan are Small Business Administration’s existing Economic Injury Disaster Loan (EIDL) program and the Paycheck Protection Program (PPP) loans. Big banks were in favor of the said $350 Billion Small-Business Loan Program and they are willing to participate in this lending program.

What is Paycheck Protection Program (PPP)

This allows small businesses with employees that are less than 500, including self-employees to avail of a bank loan up to $10 million with low-interest. This is for the purpose of keeping their businesses and their workforce employed during the COVID-19 crisis. Business lenders may begin to process loan applications starting April 3, 2020. Small Business Administration (SBA) and the Treasury Department released guidance for the loan applicants. The said program will be available until June 30, 2020.

This aid will help small businesses with their 8-week payroll and other business operating expenses including rent, mortgage interest, and/or utilities. The loan payment is deferred for six months. SBA advises that they will forgive the portion of the loan if the business uses it for covering crucial expenses. This includes the first eight weeks of payroll costs, rent, utilities, and mortgage interest. This loan application is available through any existing SBA lender. Business leaders should consult with their local lenders as to whether it participates in the program.

Who will be Eligible to Apply for the Loan

document-signature-agreementFor-profit or non-profit businesses are eligible to apply for the loan. Businesses with 500 or fewer employees for veterans’ organizations, tribal concerns, sole proprietors, and independent contractors are also included. Even self-employed individuals can avail of the loan program.

Each business lenders can avail up to a maximum loan amount of $10 million. Loan terms and conditions consist of the following

  1. Loan maturity of 2 years
  2. 1% interest rate
  3. 100% SBA guarantee
  4. No collateral and personal guarantees
  5. Payment deferred for six months

What is Economic Injury Disaster Loans (EIDL)

In comparison with PPP, the interest rate loans are fixed to 3.75% with a loan maturity for up to 30 years. Although there are no loan-forgiveness provisions, this program provides a $10,000 emergency grant. You also won’t need to use real estate as collateral or make any personal guarantee on loans smaller than $200,000. However, the business property can be a general security interest starting with loans amounting to $25,000. The eligibility of a business will depend on its credit score. Prior bankruptcy won’t disqualify a business lender. A tax return won’t be necessary. To qualify for the loan application however, part of the process will be looking into your ability to repay.

The lenders can apply for both loan programs under the S act.

Other Available Loan Assistance

Standard 7(a) Program

conclusion-of-the-contractThe maximum loan amounts up to $5,000,000. SBA guarantees 85% for loans up to $150,000 and 75% than $150,000. It offers a negotiable interest rate provided that it may not exceed the SBA maximum. If your loan amount is around $25,000 you do not need a collateral and collateral requirement in excess of $350,000 loan. The uses of proceeds should include working capital; new construction or renovation; purchase of land or buildings, equipment, and fixtures; refinancing debt for compelling reasons; or starting of a business.

7(a) Small Loan

Compared to standard 7(a) program, the maximum loan amount is up to $350,000. All other terms are the same.

SBA Express

The maximum loan amount is $350,000. SBA guarantees up to 50%. It has a negotiable interest rate but may not exceed the SBA maximum. Eligibility is under the lender’s decision. It has no more than seven years of maturity but with an option to revolve. There’s no collateral for loans up to $25,000 and you may use an existing collateral policy if you are borrowing $25,000 but up to $350,000.

Export Working Capital Loans

This is for businesses that generate export sales which need additional working capital to support sales. The maximum loan amount is $5,000,000. SBA guarantees up to 90%.

The goal of these loans is to make sure small businesses do not suffer from the impact of the pandemic COVID 19. While the businesses are facing huge losses already, this could be a damage control mechanism.

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