How SBA Loans Can Help Your Small Business

Whether you’re seeking financial help for your small business in response to the coronavirus (COVID-19) pandemic or simply wondering how to obtain financing to expand, a loan from the Small Business Administration (SBA) may be just the solution that you need.

Low-interest, long-term SBA loans are a viable option for business owners suffering substantial disaster-related physical or economic damage or who want to grow their business and can’t obtain other nongovernment financing.

Consolidated Appropriations Act, 2021 & American Rescue Plan Act of 2021

Neither the Consolidated Appropriations Act (CAA), 2021 nor the American Rescue Plan Act of 2021 are government loan programs per se. They are laws, passed by Congress, that provide additional funding and rule changes for several government programs, including the Paycheck Protection Program (PPP), Economic Injury Disaster Loan (EIDL) program, and EIDL advances. Also included is funding for a new Shuttered Venue Operator (SVO) Grant program.

Descriptions of the programs below reflect changes made by the CAA and the American Rescue Plan. Additional guidance from the Treasury Department and the SBA may require further updates.

Paycheck Protection Program (PPP)

The Paycheck Protection Program (PPP), created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020, provided forgivable SBA emergency 7(a) loans of up to $10 million to small businesses with 500 or fewer employees, including sole proprietorships, independent contractors, and self-employed people affected by COVID-19.

This program was amended by the PPP Flexibility Act of 2020, with new guidelines that allowed full or partial forgiveness of at least 60% (formerly 75%) of the amount forgiven was used for payroll and 40% (formerly 25%) of the amount forgiven was used for mortgage interest, rent, and utilities.

Instead of a six-month payment deferral, your loan was deferred until the SBA remitted the forgiven amount to your lender. If you didn’t seek forgiveness, then your payments were deferred for 10 months from the end of the covered period.

As with the original PPP program, no collateral was required and the loan did not carry any fees. However, instead of a two-year term, you now had five years to pay off your loan at the same 1% fixed rate as before.

The PPP Flexibility Act of 2020 further stipulated that if you make a good-faith offer to rehire a furloughed employee (same hours, same wages) and documented it, then you could exclude that employee from your count for purposes of forgiveness if they refused your offer.

Paycheck Protection Program (PPP) Loan Refresh

The Consolidated Appropriations Act and the American Rescue Plan provided additional funding and guidance for the PPP loan program. Presidential executive orders also helped target funds where they were needed most.

Changes to the PPP Made by the Consolidated Appropriations Act, 2021

The Consolidated Appropriations Act, 2021 provided $284 billion in new PPP loan funding through March 31, 2021, including special set-asides for companies in depressed areas and those with 10 or fewer employees.

The legislation provided first-time forgivable PPP loans of up to $10 million for qualifying companies with 500 employees or fewer and second-draw loans of up to $2 million for previous borrowers with 300 or fewer employees.

If you returned all or part of your PPP loan, you could reapply for the maximum amount applicable—provided you had not already received forgiveness. Further, if you would be eligible for a higher loan amount due to interim final rule changes, then you could work with your lender to modify the amount of your loan—even after forgiveness.

The list of forgivable expenses was expanded and to include:

• Personal protective equipment (PPE);
• Complying with federal or state health and safety guidelines;
• Software, cloud computing, and other human resources and accounting needs; and
• Property damage due to public disturbances that took place in 2020 and were not covered by insurance.

Also new, expenses that you paid with PPP loan proceeds were tax-deductible even if the loan was forgiven. This applied to both first- and second-draw loans.

You could select a covered period between eight and 24 weeks from when you received your loan, instead of needing to pick either eight or 24 weeks. Your covered period could extend through March 31, 2021.

New, simplified applications for loans under $150,000 and for forgiveness of those loans were made available.

You no longer had to deduct your $10,000 Economic Injury Disaster Loan (EIDL) advance from the forgivable amount of your PPP loan, and the new legislation directed the SBA to treat previous PPP loans and EIDL advances the same.

Changes to the PPP Loan Program That Target Very Small Businesses

On Feb. 22, 2021, the Biden administration announced several changes to the PPP program designed to make PPP funds available to the smallest businesses, including some excluded from previous relief efforts.

• Beginning Feb. 24, 2021, businesses with fewer than 20 employees had an exclusive two-week window to apply for PPP funding. During this period, larger businesses were not allowed to apply.
• The formula used to calculate PPP loans was revised to allow sole proprietors, independent contractors, and self-employed individuals to receive more financial support.
• Eligibility rules were changed to let small business owners with non-fraud-related felonies receive PPP loans as long as the applicant was not incarcerated at the time of the application.
• Also newly eligible were those who were delinquent on federal student loans.
• Non-citizen small business owners who are lawful U.S. residents, including Green Card holders and those here on a visa, also were eligible and allowed to use their Individual Taxpayer Identification Numbers (ITINs) to apply for PPP relief.

Changes to PPP Made by the American Rescue Plan Act of 2021

When the American Rescue Plan Act was signed into law on March 11, 2021, it provided $7.25 billion for PPP forgivable loans. Additional legislation known as the PPP Extension Act of 2021, signed by President Biden on March 30, 2021, let business owners apply for a PPP loan through May 31, 2021, extended the covered period for PPP through June 30, 2021, and allowed lenders to process PPP loans through that date.

The American Rescue Plan Act further enhanced the PPP program by: 

• Making more not-for-profits eligible for the PPP by creating a new category called “additional covered nonprofit entity.”
• Widening PPP eligibility to include 501(c)(3) organizations and veterans’ organizations that employ not more than 500 employees per physical location. 
• Including 501(c)(6) organizations, domestic marketing organizations, and additional covered not-for-profit entities that employ not more than 300 employees per physical location. 
• Allocating $15 billion for targeted Economic Injury Disaster Loan (EIDL) advance payments. Providing funds to businesses located in low-income communities that have no more than 300 employees and have suffered an economic loss of more than 30%, as determined by the amount that the entity’s gross receipts declined during an eight-week period, between March 2, 2020, and Dec. 31, 2021, relative to a comparable eight-week period immediately preceding March 2, 2020. 
• Ruling that funds from Targeted EIDL Advances shall not be included in the gross income of the person who receives the grant and that no tax deductions will be denied, no tax attribute reduced, and no basis increase denied due to the exclusion of the grant funds from gross income. 
• Instituting the Restaurant Revitalization Fund: $28.6 billion for restaurants, bars, and other eligible providers of food and drink. It allows for grants equal to the pandemic-related revenue loss of the eligible entity, up to $10 million per entity, or $5 million per physical location. The grants are calculated by subtracting 2020 revenue from 2019 revenue. Entities are limited to 20 locations. 
• $1.25 billion for shuttered venue operators. 
• $175 million to create a “community navigator” pilot program to increase awareness of and participation in COVID-19 relief programs for business owners currently lacking access, with priority for businesses owned by socially and economically disadvantaged individuals, women, and veterans.

Where to Apply for a SBA Paycheck Protection Program (PPP) Loan

Apply for this loan were made through any existing SBA 7(a) lender or through any participating federally insured depository institution, federally insured credit union, and Farm Credit System institution.

The SBA and the Treasury Department announced that the PPP would reopen the week of Jan. 11, 2021, for new borrowers and existing PPP loan recipients.

Initially, only community financial institutions, including community development financial institutions (CDFIs), minority depository institutions (MDIs), certified development companies, and microloan intermediaries were able to make first-draw PPP loans beginning Jan. 11, 2021. Second-draw PPP loans through the same lenders started Jan. 13, 2021. First- and second-draw loans were available from small lenders with less than $1 billion in assets as of Jan. 15, 2021, and all participating PPP lenders were approved to make loans beginning Jan. 19, 2021.

Do not use any other road to apply for a PPP loan; scammers will offer shortcuts to PPP loans, just as they did with the original program. The Federal Trade Commission filed a case against one such company on April 17, 2020. Only apply by first going to the SBA website. And know that the SBA will never ask for Social Security numbers—or bank account or credit card numbers—upfront, the FTC cautioned.

Economic Injury Disaster Loan (EIDL) Advance

Small business owners in all 50 states, Washington, D.C., and U.S. territories were able to apply for an Economic Injury Disaster Loan (EIDL) Advance of up to $10,000 as part of the application process for an EIDL loan. The loan advance did not have to be repaid, and you didn’t actually have to be approved for an EIDL loan to receive the advance; however, the amount of the loan advance was deducted from total loan eligibility.

Economic Injury Disaster Loan (EIDL) Targeted Advance Refresh

The Targeted EIDL Advance program, which is more restrictive than its predecessor, is authorized under the CAA and makes up to $10,000 available to applicants located in low-income communities who previously received an EIDL Advance for less than $10,000, or those who applied but received no funds due to lack of program funding.

If you previously received a partial EIDL Advance ($1,000 to $9,000), then the SBA will reach out to you first by official (@sba.gov) email to determine your eligibility and provide instructions.

If you are in this group, then you may qualify if you:

• Are located in a low-income community, as defined in section 45D(e) of the Internal Revenue Code; and
• Can demonstrate that you suffered a more than 30% reduction in revenue during an eight-week period beginning on March 2, 2020, or later. You will be asked to provide proof of the more than 30% revenue reduction.

If you previously applied for an EIDL Advance but did not receive one due to a lack of funds, you are next in line to be contacted by the SBA.

To qualify in this group, you must meet the qualifications above plus: 

• Have no more than 300 employees.

If your business is otherwise eligible for the EIDL program—including if you are a sole proprietor, independent contractor, or private, nonprofit organization—and you meet the qualifications above, then you are eligible for consideration for the targeted advance. Agricultural enterprises are not eligible.

You may be asked to provide an Internal Revenue Service (IRS) Form 4506-T giving the SBA permission to request your tax return information.

Economic Injury Disaster Loan (EIDL)

SBA Coronavirus Disaster assistance loans were designed to help businesses recover from the economic effects of COVID-19. Disaster assistance loans of up to $500,000 with maximum terms of 30 years were available. Small business owners in all 50 states, Washington, D.C., and U.S. territories were eligible to apply. However, as of Jan. 1, 2022, the SBA announced that “we are not able to accept applications for new COVID EIDL loans or advances.” However, it “will continue to accept requests for increases, reconsideration, and appeals.”

Loans could be used to pay fixed debts, payroll, accounts payable, and other bills that can’t be paid due to the impact of COVID-19. The interest rate for small businesses is 3.75%. Nonprofits pay just 2.75%.

Economic Injury Disaster Loan (EIDL) Refresh

The main change brought about by the CAA, aside from $20 billion in additional funding for the Economic Injury Disaster Loan (EIDL) program, was an extension of time to file for a loan from Dec. 31, 2020, to Dec. 31, 2021.

On March 24, 2021, the SBA raised the EIDL limit from $150,000 covering six months of economic injury to $500,000 for 24 months of economic injury, effective April 6, 2021. Further, some businesses that previously received a loan under the lower limits may be deemed eligible to increase their loan amount. The SBA said it would notify those businesses of their eligibility.

Shuttered Venue Operator (SVO) Grant program

The Shuttered Venue Operators (SVO) Grant program, authorized by the CAA on Dec. 27, 2020, includes $15 billion in grants to shuttered venues. Funds are administered by the SBA’s Office of Disaster Assistance.

Eligible applicants can qualify for SVO Grants equal to 45% of their gross earned revenue, with a maximum of $10 million. There is $2 billion reserved for eligible applicants with up to 50 full-time employees.

Eligible entities include:

• Live venue operators or promoters
• Theatrical producers
• Live performing arts organization operators
• Relevant museum operators, zoos, and aquariums that meet specific criteria
• Motion picture theater operators
• Talent representatives, and
• Any business entity owned by an eligible entity that also meets eligibility requirements

 SVO Grants are only available to venues that:

• Have been in operation as of Feb. 29, 2020
• Have not received a PPP loan on or after Dec. 27, 2020

SVO Grand funds may be used for: payroll, rent, utility, mortgage payments, debt, worker protection, payments to independent contractors, maintenance, administrative costs, state and local taxes, operating leases (in effect as of Feb. 15, 2020), insurance, advertising, and other costs of production.

Grantees may not use funds to purchase real estate, make loan payments on loans originated after Feb. 15, 2020, make investments, or make political contributions or payments.

Where To Apply for Coronavirus Disaster Assistance

Economic Injury Disaster Assistance Loans and Targeted Advances are funded by the Small Business Administration (SBA). Applications for an EIDL loan went through the SBA website.

Recall that there is no application process for the new EIDL $10,000 Targeted Advance. The SBA will contact you if you are eligible.

The SBA expects to open SVO Grant applications on April 8, 2021. Interested entities can stay up to date by visiting www.sba.gov/svogrant on a regular basis.

SBA Express Bridge Loan (EBL)

If you already have a business relationship with an SBA Express Lender, a new Express Bridge Loan Pilot Program offers a quick turnaround on up to $25,000 to help bridge the gap until your SBA Economic Injury Disaster Loan (EIDL) is approved. Bridge funds can be paid in full or in part with proceeds from your EIDL once it is approved.

Where To Apply for an SBA Express Bridge Loan

Consult the Express Bridge Loan Pilot Program Guide or contact your local SBA district office for details.

SBA 7(a) Loan Debt Relief

The SBA Debt Relief program will pay principal, interest, and fees for six months on new 7(a), 504, and microloans made from March 27, 2020, to Sept. 27, 2020. The program also will pay principal, interest, and fees for six months on existing 7(a), 504, and microloans beginning with the first payment due after March 27, 2020.

Where To Apply for 7(a) Loan Debt Relief

This relief is automatic and does not require an application. Check with your lender for more information or if you have questions.

SBA Deferral on Existing Home and Business Loans

If you currently have an SBA Serviced Disaster (Home and Business) Loan that was in “regular servicing” on March 1, 2020, then the SBA provided automatic deferral on your loan through March 31, 2021. Note the following:

• Interest will continue to accrue on your loan during the deferral period.
• 1201 monthly notices will still be mailed but will show no payment due.
• Pre-Authorized Debit (PAD) payments will not automatically be canceled. You must contact your servicer to do that.
• You may continue making payments if you wish. No contact is necessary.
• After the deferral period, you must resume payments and set up PAD if you canceled it earlier.

Where To Apply for Existing Disaster Loan Deferral

Deferral is automatic. You do not need to apply. After the deferral period, you do not need to contact the SBA before resuming payments.

SBA Business Expansion Loans

The disaster-related loans referenced above are made with funds appropriated or guaranteed by Congress. SBA business expansion loans are commercial loans, structured according to SBA requirements, with an SBA guarantee. Small business owners and borrowers who have access to other financing with reasonable terms are not eligible for this type of SBA-guaranteed loan. Guaranteed loan programs from the SBA include the following:

7(a) Loan Program

This is the SBA’s most common loan program and provides financial help for businesses with special requirements, such as franchises, farms and agricultural businesses, and fishing vessels. There is no minimum loan amount, but the maximum is $5 million. Note that emergency SBA 7(a) loans available under the PPP have different requirements from those used for business expansion.

There are nine types of 7(a) loans—each with its own maximum loan amount, SBA guarantee, negotiated interest rate, and other factors—all of which are spelled out on the 7(a) loan program web page.

Microloan Program

This program provides small, short-term loans of up to $50,000 to small businesses and certain types of not-for-profit childcare centers. Loans can be used to buy new equipment, supplies, or furniture, or to provide working capital. Loans are provided by microlenders, with each having its own lending and credit requirements.

CDC/504 Program

This loan program provides financing for businesses to purchase real estate, major fixed assets, and equipment, or to make improvements like landscaping. This program can also provide funding for renovation.

Where To Apply for an Expansion Loan

As previously noted, the SBA doesn’t lend money directly to help you grow your business, as it does when providing disaster relief. Instead, it sets stipulations for loans made by its partners (lenders, community development organizations, and microlending institutions). You can apply for an expansion loan at any SBA-approved lender or use the SBA’s Lender Match.