The federal government extended the forgivable portion of two small-business loan programs as part of the $900 billion stimulus law enacted last week, throwing a potential lifeline even to companies who may not have felt the impact of the pandemic.
The extensions permit the federal government to continue a program in which it makes monthly principal and interest payments on behalf of companies that have, or newly take out, a Section 7(a) or Section 504 loan from the Small Business Administration (SBA). Companies don't have to pay back the debt service help.
The loans have been around for a while, but last year, as part of the government's first stimulus package passed in March, the SBA was authorized to pay principal and interest for loan recipients for six months. Recipients didn't have to do anything; the SBA stepped in automatically to make the payments. Some $8 billion was authorized for the help.
The intent was to give quick help to companies, but the program expired in September, leaving the loan programs in place but without the monthly payment help.
The $900-billion stimulus law signed on December 27 restarts the monthly payment assistance, which means companies that received a loan after the end of September, as well as new loan applicants, can expect to see the SBA take over their payments for several months.
The extension includes rule changes, too. For businesses who already have a loan, and are in a hard-hit business sector like food service, accommodation, retail, and other in-person services, up to eight months of help are available. For businesses that are not in one of the targeted sectors, the duration is shortened. Total assistance is capped at $9,000 a month.
New loan recipients can receive up to six months of help with the $9,000 monthly payment cap.
Could benefit startups
The 7(a) loans are capped at $5 million and are open to any small or medium-sized business (SMB) that has fewer than 500 employees or up to $7.5 million in annual receipts. Companies can use the funds for working capital or to buy inventory, equipment, or another company. Unlike PPP, it is not necessary to show pandemic-related income losses.
The loans are federally guaranteed, so although participating lenders conduct their standard due diligence, they can approve borrowers under more flexible terms than they otherwise might. Terms, of between seven and 25 years, are based on how the proceeds are used. Interest rates can be either fixed or variable.
Section 504 loans are also federally guaranteed and for a maximum $5 million. Loan terms are for between 10 and 20 years, with fixed interest rates. Proceeds can be used to buy business-related property and equipment.
"Hundreds of thousands of organizations have taken advantage of the Small Business Debt Relief Program," says Rep. Antonio Delgado (D-N.Y.), who cosponsored the bill to extend the program. "More entrepreneurs [will be able to] access loan payments."