If you’re looking for working capital for your small business or you’re in the market to buy a small business, now is a good time to learn more about the SBA loan program.
Last year, a provision hidden in a clause of the CARES Act offered relief for small businesses and people who sought to buy them. The clause expired in September 2020. But the new stimulus law — the 2021 Consolidated Appropriations Act (CAA) — brings the incentives back and gives them a boost.
Under the CARES Act, the SBA covered six months of small business loan payments and guaranteed 75 percent of the loan amount.
Under the new law, the SBA will cover up to eight months of loan payments, depending on the line of business. It also boosts the guarantee to 90 percent, making it even easier for banks to take a chance on financing.
The loans do not require the business to prove that it has been affected by the COVID-19 pandemic, and you can apply for a loan even if you have an existing Paycheck Protection Program (PPP) loan.
The new provisions apply from Jan. 1, 2021, through Sept. 30, 2021, or until the money runs out.
The details
The new law makes changes to the SBA 7(a) lending program and the 504 Microloan program.
A Section 7(a) loan — received through an SBA lender — can be used for working capital, inventory, equipment and/or buying a business. Under the program, a for-profit business based in the U.S. that has fewer than 500 employees and less than $7.5 million in average annual receipts can borrow up to $5 million at both fixed and variable interest rates.
To qualify, the business may not be delinquent on any debt owed to the government. Loan maturities range between seven and 25 years, depending on how you’re planning to use the loan.
The SBA’s 504 Microloan program focuses on job creation. The loans under this program are intended for purchasing existing buildings, commercial real estate, and equipment needed to grow your business.
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The loans are subject to similar requirements and the same $5 million limit as Section 7(a) loans. But interest rates are fixed, and maturities range from 10 to 20 years.
For businesses that already have an SBA Section 7(a) or 504 Microloan, you can now have an additional three months of principal and interest payments for your loan forgiven, up to $9,000 per month, starting Feb. 1, 2021.
An additional five months will be forgiven for loans in certain hard-hit industries, including food service, hospitality, arts, entertainment and recreation, education, and laundry and personal care services.
For any new Section 7(a) loan or 504 Microloan granted before Sept. 30, 2021, your first six months of principal and interest (up to $9,000 a month) will be forgiven.
Applying for a loan requires the borrower to provide a business plan, tax returns and an explanation of its ability to meet the terms of the loans.