[THIS ARTICLE IS OUT OF DATE. PLEASE SEE UPDATED INFORMATION HERE.]
By Phillips Murrah attorney Kendra M. Norman
The U.S. Small Business Administration (SBA) has several lending programs. A full list of the loan programs offered by the SBA and eligibility requirements can be found here, however its main programs are as follows:
General Small Business Loans 7(a)
This is the SBA’s main lending program. This loan that can be used for various business expenses including expansion/renovation/new construction; purchase of land or buildings; refinancing of debt for compelling reasons; a seasonal line of credit; etc. While the lenders participating have unique eligibility requirements, generally the business must be an officially registered for-profit business, do business in the United States, the business owner must have invested equity into the business, and the business must have exhausted its financing options such that it cannot obtain funds from any other financial lender. Assuming a 3.25% market prime rate (effective March 16, 2020), the SBA 7(a) loan rates are 6% to 8%.
Real Estate & Equipment Loans: CDC/504
The CDC/504 Loan is for business borrowers looking to buy land, buildings or major equipment with long-term, fixed-rate financing. To be eligible for a 504 loan, your business must be operated for profit and have a tangible net worth not more than $15 million, and an average net income of $5 million or less after federal income taxes for the preceding two years prior to application. Loans cannot be made to businesses engaged in nonprofit, passive or speculative activities.
Assuming a 3.25% market prime rate (effective March 16, 2020), the SBA CDC/504 loan rates are 3.63% to 6.112%.
Economic Injury Disaster Loans
Congress has approved additional SBA loan funding under the Coronavirus Preparedness and Response Supplemental Appropriations Act. Therefore, the SBA is offering designated states and territories low-interest Economic Injury Disaster Loans for working capital to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19).
SBA’s Economic Injury Disaster Loans offer up to $2 million in assistance and can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing. These loans may be used to pay fixed debts, payroll, accounts payable and other bills that cannot be paid because of the disaster’s impact. The interest rate is currently 3.75% for small businesses and 2.75% for non-profits. The SBA offers loans with long-term repayments up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay.
On March 17th, Governor Kevin Stitt submitted a request to the SBA for a declaration under the Economic Injury Disaster Loan Program. On March 20th, the SBA issued the declaration making Oklahoma businesses affected by COVID-19 eligible to apply for the SBA Economic Injury Disaster loans. You can fill out the loan application will here. The Oklahoma Department of Commerce has issued SBA Loan FAQs here.