The dominant narrative around small business America throughout the pandemic has been pessimistic. But there is another side to the small business story emerging. A story of determination, perseverance and new opportunities.
Many companies have shown incredible creativity and ingenuity in taking advantage of the opportunities arising from the pandemic and are shifting into growth mode as a result. Maybe they’ve invested in new technology to adapt to a touchless world or moved a production line to make hand sanitizer or protective gear. As a result, they are now prosperous and need capital to grow.
The good news is that these businesses have great financing options through the Small Business Administration (SBA) thanks to the Recovery plan passed in December. The bill enhanced three key loan programs that are part of the SBA’s traditional offerings, creating very generous loan terms. Many businesses should consider how they can take advantage of this.
Changes to these programs went into effect Feb. 1 and haven’t received the publicity that the Paycheck Protection Program expansion has. Additionally, these provisions are only in place for a limited time – until September – so business owners should act quickly.
For traditional SBA 7(a) loans, businesses borrowing less than $4.15 million can now obtain a government guarantee of up to 90% of their loan amount, making it easier for banks to approve loans. SBA loans. But several changes directly benefit borrowers. The first is that the guarantee fee has been waived, saving up to $150,000 for larger loans. Additionally, the SBA will cover three months of principal and interest repayments for any loan approved by the end of September, up to $9,000 per month.
Any business that currently sees growth opportunities should seriously consider an SBA 7(a) loan.
Take one restaurant customer I know who was shut down by the first wave of COVID-19, but has since transformed into a delivery-only service and redeployed their servers to become delivery drivers. After coping with the disaster, the company’s year-end revenue was about the same as 2019. Its main challenge now is reaching more customers, so the restaurant is considering adding “ghost kitchens” to answer the question. This is exactly the kind of candidate the new rules are designed to benefit.
Another SBA offering that has become much more generous is Express Loans. These lines of credit were previously capped at $350,000 and backed by a 50% government guarantee.
Now they go up to $1 million and lines up to $350,000 can get a 75% government guarantee. Like 7a loans, the guarantee fee is waived and the SBA covers the first three months of interest payments. This offer is best suited to growing businesses that need working capital to overcome short-term difficulties. They may be dealing with buyers who are not paying as quickly as usual, or they may need to purchase more inventory in advance due to supply chain delays.
The third channel where businesses can reap new benefits is through the 504 loan program. Typically, these loans are used for owner-occupied commercial real estate or to purchase manufacturing equipment. The SBA is now waiving a 1.5% fee on its share of loans, plus a 0.5% fee that must be paid by the bank. The SBA will also pay the first three months of principal and interest.
A 504 loan is best suited for businesses looking to expand by purchasing real estate, but will soon be available for businesses needing to refinance an existing loan on owner-occupied property. The refinance program could become a great choice for businesses that experience declining property values as their conventional loan matures, which could affect businesses that own their retail or office space in the coming months.
As many states begin to reopen as vaccinations increase and COVID-19 rates decline, small businesses that have survived the pandemic are considering reinvesting in their businesses.
After such a difficult year, it’s encouraging to see the SBA’s lending policies that will help businesses thrive. Based on the ingenuity and momentum I’ve seen over the past 12 months, there will be no shortage of companies that can take advantage of these offerings and accelerate their growth.
Mark Abell is senior vice president and director of the SBA division at NBH Bank, which serves its customers through Colorado Community Banks, Bank Midwest and Hillcrest Bank.