As of May 28, 2021, the Paycheck Protection Program has run out of funding. You can learn more about the PPP with our COVID-19 resource hub.
When Congress passed the Coronavirus Aid, Relief, and Economic Security Act (more commonly known as the CARES Act) in late March, a big part of the legislation was aimed at providing financial assistance to small businesses struggling to navigate the COVID-19 pandemic—most notably, the Paycheck Protection Program.
The Paycheck Protection Program is a loan program administered by the U.S. Small Business Administration, which initially oversaw $350 billion in small business loans. This relief program was designed to help small and local businesses maintain employee retention and keep their businesses moving forward during the pandemic.
The main draw of PPP loans was, if businesses used the loan proceeds to cover approved expenses (including eligible payroll costs, like employee health care benefits and sick leave, and nonpayroll costs, like mortgage interest and lease payments), up to 100% of the loan amount could qualify for loan forgiveness—essentially turning the loan into a small business grant.
The Paycheck Protection Program proved wildly popular (the initial $350 billion in Paycheck Protection Program loan funds was depleted in less than two weeks, which pushed Congress to pass additional legislation replenishing the program with an additional $310 billion), getting millions of small businesses the funds they needed to weather the initial challenges and loss of revenue caused by the coronavirus pandemic.
But the Paycheck Protection Program is no longer accepting new loan applications—and as COVID continues to disrupt the way we live and do business in the United States, many small businesses are in need of additional funding to keep their businesses looking forward.
Luckily, there are still plenty of financing options for small businesses. Let’s take a look at some alternative small business financing options you may want to explore to support your company through the continuing COVID-19 outbreak and associated public health, reopening, and economic challenges:
SBA Small Business Loans
The U.S. Small Business Administration has a number of loan programs aimed to provide financial assistance to small businesses, including:
The SBA’s primary loan program, the 7(a) program offers a variety of small business loans to suit your business’ needs—including the need to keep things moving forward during the coronavirus pandemic.
Depending on your needs, there are a variety of SBA loans available through the SBA 7(a) program you may want to explore, including:
- Standard 7(a)
- 7(a) Small Loan
- SBA Express Loan (receive a response to your loan application from an SBA Express Lender in 36 hours)
- Export Express
- Export Working Capital
- International Trade
Maximum loan amounts range from $350,000 to $5 million, with other terms and conditions (including eligibility requirements, interest rate and repayment terms) varying by loan type. You can apply for an SBA loan directly through an SBA-approved lender.
If you only need a small amount of capital to keep your business moving forward, the SBA’s Microloan option could be a good option. Microloans through the SBA cap out at $50,000—but most businesses borrow less (according to the SBA, the average microloan is $13,000). Microloans are processed through a network of intermediary lenders and can be used to cover a variety of expenses for your business, including working capital, inventory, or machinery and equipment.
504 Loan Program
The SBA’s 504 loan program is specifically targeted towards businesses that need funding to cover “fixed assets for expansion or modernization”—and if your needs fit that bill, this could be a loan option to explore.
As mentioned, 504 loans allow businesses to access capital for fixed assets that allow them to expand or modernize their business (for example, purchasing a new building, renovating an existing building, purchasing furniture and equipment, or buying land for expansion). These small business loans, which are also federally guaranteed for up to $5 million dollars, are processed through Certified Development Companies (CDCs), a network of SBA-approved lending partners.
SBA Economic Injury Disaster Loan (EIDL)
There’s no denying that the COVID-19 pandemic qualifies as a disaster—and, in times of disaster, one of the best financing options available for small businesses? SBA economic injury disaster loans—more commonly known as EIDLs.
The EIDL program is a disaster assistance relief fund administered through the U.S. Small Business Administration that provides emergency loans to small businesses facing economic hardship as the result of the disaster.
EIDL loans aren’t forgivable like PPP loans (when the CARES Act passed, it included $10 billion in funding for the EIDL Advance program, which provided small businesses owners with grants, in the form of a loan advance, of up to $10,000—but those funds were depleted in July). But they do offer more competitive loan terms than more traditional financing options, including a 3.75 percent fixed interest rate (nonprofits get an even lower fixed interest rate at 2.75 percent), 30 year repayment terms, and no prepayment penalties or fees–making them a better financing option than more traditional small business loans.
In order to qualify for an EIDL loan, you must meet the following eligibility criteria:
- The business was operational as of January 31, 2020
- The business entity falls under one of the following categories: small businesses, qualified agricultural businesses, eligible nonprofit organizations, Veterans organizations, Tribal organizations, self-employed individuals, sole proprietors, or independent contractors
- The business has fewer than 500 employees or meets the SBA’s small business industry size standard
- The business is located in an area with a declared disaster (which, because the COVID-19 pandemic has been declared a national emergency, is anywhere in the United States)
- The business is not currently involved in bankruptcy proceedings
If your business meets the above eligibility criteria, you can apply for an Economic Injury Disaster Loan through SBA.gov.
Business Loans from Traditional Lenders
If you don’t qualify for a loan through the SBA (or you want to explore additional funding options), there are plenty of financing options available through traditional lenders—starting with a term loan.
Term loans are loans available through traditional lenders (including banks, credit unions, and other financial institutions or online lenders) that have a clearly defined amount, repayment schedule, and fixed or variable interest rate. The loan amount, repayment schedule, and interest rate you’re able to secure with a term loan will depend on a variety of factors, including the lender, your creditworthiness, and your business history.
You could also apply for a business line of credit. A business line of credit works just like a personal line of credit; it gives you access to a fixed amount of capital to cover various expenses for your business. You can use as much or as little of your business line of credit as you’d like; you only pay interest on your outstanding balance, and when you pay down your balance, those funds become immediately available (again, just like a personal line of credit).
Similar to term loans, your credit limit and interest rate will depend on your lender, creditworthiness, and other eligibility factors. If you’re interested in exploring a term loan or business line of credit as a financing option for your small business, it’s best to explore different lenders to see who offers the most competitive rates and terms.
Use these financing options to get COVID-19 relief for your business
The pandemic has proved extremely challenging for the small business community in 2020. But with these COVID-19 resources, you have a jumping off point to start exploring financing options to keep your business moving forward through the rest of the year and into 2021—where (hopefully) the pandemic will be less disruptive to business activity across the country.