DON’T RELY ON THE GOVERNMENT TO BAIL YOU OUT BUT YOU MAY BE ELIGIBLE FOR AN SBA EXPRESS LOAN!

The SBA offers “SBA Express Loans” through the regular SBA (Small Business Administration) Loan allocation. These loans are offered through Section 7(a) of the Small Business Act, which is the legislation that authorizes the SBA to provide business loans to American small businesses (although as we know from recent sad results, we cannot be sure of how the SBA is interpreting the term “small business”, which is “supposed” to be defined as businesses of 500 employees or less, but which definition has obviously been loosely applied in the current allocation of the CARES Act funding based on some of the recipients!).

Only for-profit businesses that have been in business for 2 or more years that demonstrate a clear need for financing and are able to show how the funds will be used and have no governmental loan delinquencies are eligible for SBA Express loans. Financial institutions, insurance companies, and a variety of other businesses are automatically disqualified, as are businesses that can access financing elsewhere (please inquire here for more information).

Traditional SBA Section 7(a) loans offer up to $5 million and includes a guarantee of up to 85% of the loan amount, whereas the “express” loan is easily distinguishable as it is approved or denied within 36 hours. The downside of this 36-hour turnaround is that the SBA only guarantees 50% of the loan amount, such that you will likely be held personally liable in the event of a default. However, once approved, funds are made available to the business owner within ninety (90) days, although the funds are usually available within two (2) weeks!

Unfortunately, the loan terms are not nearly as favorable as those under the CARES Act, and the interest rate ranges from 7.25% to 9.75%, and the maximum loan amount is $350,000. You will be charged a fee, which is a percentage of the amount guaranteed by the SBA (ie the 50%), OR 3% of the guaranteed portion (50%) for loan amounts between $150,001 and $350,000.

As with the Paycheck Protection Program , since the SBA is not a financial institution and cannot lend money to businesses directly, you will need to work through a financial institution that is an authorized SBA lender (check out sba.gov) to find an approved third-party lender to guarantee the loans, or back them in case the borrowers are unable to repay them – how this looks in terms of loan forgiveness remains sadly unclear, although it is hopeful that the traditional rules may be relaxed for those businesses affected by COVID19 and left in the cold by the CARES Act allocations thus far.

Nonetheless, especially for businesses that have tried and failed to receive funding elsewhere, the SBA Express Loan might be a helpful option to consider.

How can SBA Express Loan funds be Used?

Since it is not a disaster loan or part of the CARES allocation, the SBA Express Loan can be used to cover a wide range of business needs, including:

· Long- or short-term working capital

· Accounts payable, purchasing inventory, or other operational expenses

· Seasonal financing, contract performance, or export

· Purchasing real estate, equipment, furniture, machinery, supplies, and materials

· Construction and/or renovation costs

· Establishing, acquiring, or expanding a business

· Refinancing of business debt (provided this will not result in a loss to lender or SBA)

It is important to note that SBA Express loan funds can’t be used to reimburse owners for personal investments, repay delinquent taxes, or any purpose that is not deemed to be a “sound business purpose” – which is defined at the discretion of the SBA.

Below is a list of the typical documents required for an SBA Express Loan:

· Borrower application forms (including SBA Form 1919)

· A detailed description of how the loan funds will be used

· Personal history statement (if applicant has a criminal history)

· Compliance Agreement (if plan to use the funds for construction)

· A profit and loss statement & Financial projections

· A list of owners and affiliations (other ownership)

· Business licenses and certifications

· All previous loan applications

· 3 years of executed tax returns for owner(s) and business

· Owners' Resumes if > 20% ownership of business

· Business Leases

We are here to help you with the SBA Express Loan and a variety of other loan and grant opportunities, as well as potential ways to pivot your business to be able to access these options and enhance your short- and long-term success. Please email us to explore your specific options or click here to set up a Funding and Pivoting Strategy session without delay!

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