There’s been much attention paid to the thousands of small businesses that have been suffering as a result of the pandemic. Restaurants and fitness centers have seen their operations curtailed to the extent that many are simply shuttering their doors. Retail stores have seen their foot traffic all but disappear and those in the travel, events and arts industries have also seen their business dry up as people and business travelers stay at home. The new relief package passed at the end of the year includes targeted funding to help those businesses through another round of the paycheck protection program, tax incentives and special grants. That’s a good thing.
But there are millions of other small businesses in this country who have been profitable this year. They don’t need the kind of help that restaurateurs and retailers need. But their continued survival is absolutely critical for future job creation and economic growth. To address the needs of those businesses, an incentive has been provided in the new legislation: extraordinary debt payment forgiveness on both new and existing SBA Section 7(a) and 504 Microloans.
How extraordinary?
If your business has an existing SBA Section 7(a) or 504 Microloan you can receive up to eight months of forgiveness on both your principal and interest payments (three months plus an additional five months if you’re in a hard-hit industry such as food service and accommodation, arts, entertainment and recreation, education as well as laundry and personal care services) all capped at $9,000 per month. If your business gets approved for a new Section 7(a) or 504 Microloan before 20 September 2021 you get your first six months of principal and interest payments forgiven up to $9,000 per month. You can even take advantage of this benefit if you’ve received a paycheck protection program loan.
These loans aren’t for survival. They’re for expansion. “It’s an opportunity to provide fast, automatic targeted relief to SBA loan holders,” Senator Chris Coons, one of the architects of the provision, told me in a recent podcast interview. “It’ll help sustain or revive businesses that have really had a hard time getting through this pandemic and the recession that resulted.”
The Section 7(a) and 504 Microloans are given out through the SBA’s lending network to small businesses with less than 500 employees and who meet other requirements. The businesses that receive these loans aren’t normally startups and they’re usually not struggling. That’s because – even though the loans are backed by the US government – a business seeking the financing must go through the similar due diligence like any other loan and produce tax returns, collateral, historical financial statements and other documentation that supports their ability to pay back the loan.
But once those requirements are met, the loans – which can be up to $5m and at both variable and fixed interest rates – can be used for working capital, equipment and real estate purchases and even to acquire another company’s assets. Depending on the loan, maturities range from 7-25 years.
Some may argue that this legislation is giving help to profitable small businesses that don’t need it as much and there’s some truth to that. But these SBA programs are not just for relief. They’re designed for economic development and jobs. They provide needed funds to small businesses who might otherwise not have been able to receive a loan through a traditional bank arrangement.
“One of the benefits of having debt relief that is automatic is that you’re targeting some assistance to businesses where you already know that they’re smaller,” Coons said. “They’re more likely to struggle, that they weren’t bankable without an SBA loan, but they have made it through a review and an underwriting process.” Coons believes that these businesses can succeed with this kind of help.
And he’s right. The pandemic will end. The economy will recover. Unfortunately, many small businesses will not. But there are 30 million of us in this country and for those that do navigate their way through the recession, this type of government assistance will not only help us emerge, but grow.