Are you a business owner, entrepreneur or startup founder who is concerned about the impact of the coronavirus oncash flow and business continuity? You are not alone. And there are several financial options to consider to get through the challenges.
I have been asked by many business owners about the emergency Small Business Administration (SBA) coronavirus loans. As we wait for information to become available about this program, some historical context may be useful.
The SBA does, and has historically, issued loans in emergency situations, such as hurricanes, fires, tornadoes etc. What makes these loans different from regular SBA loans is that they are issued by the government—not the banks. And while the interest rates are low and the repayment terms are favorable, the application process has historically taken months and is often unpredictable.
As the impact of COVID-19 continues to grow, it is important to know that regular SBA loans are still available through banks and we have not seen any changes in their underwriting yet.
Traditional SBA loans are still available, and often easier to apply for
The application process for regular SBA loans is simpler if you are applying for US$350,000 or less and have the historical cash flow to support the payment.
These loans amortize over 10 years and the interest rate is 7 percent. There are no prepayment penalties, and no lien on a house—if the loan is US$350,000 or less. While the lender will take a lien on your business assets, it is willing to sit in second lien position behind other loans. It is also important to note these are term loans instead of lines of credit, which means you start paying interest on the full balance immediately.
Another option: Line of credit
In addition to SBA options, you may want to approach your bank about a line of credit, or see if you can get a home equity line of credit against your home.
You should be extremely careful of online lenders offering loans or advances with quick paybacks. While they may be appealing for their simplicity, they can rapidly become a bigger problem as daily payments can drain your cash flow.
Filing your taxes now could help speed up the approval process
If you are interested in one of these loans, it would be wise to file your 2019 tax returns as soon as possible, as this could make a difference in being approved. Ninety-plus percent of business loans, including lines of credit, equipment loans, government lending, senior debt instruments, commercial mortgages, and even asset-based lending (at reasonable rates) will require tax documentation.
With the path of coronavirus everchanging, the situation is fluid. In my company, we advise business owners on a daily basis about SBA loans as well as other borrowing options.
This article was originally published on the EO Global Octane Blog.
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