After persisting through the recession caused by the COVID-19 pandemic, it’s an exciting time for small businesses to bounce back and ride the wave of economic growth. Idaho’s economy leads the national pack and has been one of two job-creating states for the past two years, with average annual employment growth of 2% during the period .
As Idaho businesses brace for a rebound, it’s important for entrepreneurs to assess their financing needs. The very popular US Small Business Administration 7 (a) loan was updated this year with terms favorable to entrepreneurs.
The SBA guarantees a portion of each loan 7 (a), which helps banks mitigate some of the loan risk and allows more businesses to qualify for financing. Due to the SBA guarantee, the 7 (a) loan is generally easier to obtain than a conventional loan.
The 7 (a) loan is one of the most popular because of its versatility. Entrepreneurs can borrow up to $ 5 million for uses that typically include business acquisitions, expansions, start-ups, inventory, equipment, or working capital.
The SBA also sets a reasonable maximum interest that it considers affordable for a business loan. These rates vary by lender and are influenced by prime rate, loan amount, term, and cyclical factors such as the borrower’s industry and personal credit.
Finally, SBA 7 (a) loans can allow for smaller down payments and longer durations compared to conventional financing, thereby reducing the burden on cash flow and making monthly payments more affordable.
To better meet the needs of U.S. small businesses, the SBA has made significant changes to Loan 7 (a) which will remain in effect until September 30, 2021:
– Payment relief for new loans: To help small businesses still recovering from the COVID-19 pandemic, the SBA has announced guidelines to offer payment relief. For new 7 (a) loans approved between February 1 and September 30, 2021, the SBA will cover three months of Section 1112 principal and interest payment, subject to availability of funds, up to a maximum of $ 9,000 per month. Borrowers who have already received payments under Section 1112 are not eligible for additional payments.
– Relief from payments for existing loans: SBA 7 (a) loans approved before March 27, 2020 will receive an additional two months of Section 1112 principal and interest payment, up to a maximum of $ 9,000 per month. Businesses belonging to specific NAICS codes may be eligible for three months of additional payments. However, borrowers who have already received six months of Section 1112 payments are not eligible for additional payments.
– SBA Maximum Loan Guarantee Increase: The SBA has increased loan guarantees to 90%, which can help lenders further reduce their risk and allow more borrowers to qualify. Previously, the guarantee was 85% for loans up to $ 150,000 and 75% for loans over $ 150,000.
– Exempt guarantee costs: Until September 30, 2021, guarantee fees for lenders and borrowers have been waived. These fees typically range from 2 to 3.75 percent and depend on the size of the secured portion of the loan and the length of the loan.
Although the SBA has extended its favorable loan terms, it is important to recognize that the window to receive these benefits is quickly coming to an end. Working with a qualified banker can help you analyze your needs and speed up the application process.
In the post COVID-19 environment, savvy small business owners can benefit from returning customers to their normal routines and increasing their spending. Entrepreneurs who can move forward with the right financing tools will be well positioned for the future.
R. Jay Henderson is the Pocatello Community Banker for Zions Bank, a division of Zions Bancorporation, a member of the NA FDIC. Zions Bank is an equal lender for housing. To contact R. Jay, call 208-244-3468 or email [email protected]