Locked Out of the PPP? Here Are Other Options to Get Through COVID-19

ByNadav ShemerApr. 26, 2020

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PPP loans
For small business owners, the initial feeling of relief over the federal government’s coronavirus stimulus package has turned to frustration.

The first stimulus package in late March included $349 billion to support emergency business loans for SMBs. The funds for the ‘Paycheck Protection Program’ (PPP) were earmarked for businesses with fewer than 500 employees. But then large publicly traded companies like Shake Shack exploited loopholes to access the program – locking SMBs out in the process.

Additional relief is on its way, with Congress expected to approve a second package worth $310 billion on April 24. But there’s a catch here, too. As the New York Times has reported, the large volume of applications in the first round make it likely that most of the new funds will go to those already in the queue. Any new applications would likely miss out on this funding round.

Quite simply, the government isn’t providing funds quickly enough to accommodate everyone in need. For many business owners caught out by COVID-19, the best bet is to find an alternative funding option.

Here are the top business loan options for getting through the coronavirus pandemic – from the PPP to completely private business loans.

Paycheck Protection Program (PPP) is a somewhat viable option

Despite the difficulty of qualifying, we’re including the PPP here because it offers the best terms. The Paycheck Protection Program isn’t entirely new; all it does is expand the scope of government-backed SBA loans to support businesses during COVID-19.

The program is technically open to businesses with fewer than 500 employees, including sole proprietors, independent contractors, and self-employed individuals. After the furore over the first round, it appears the rules will be tightened to ensure funds go to actual SMBs. Additionally, it’s been reported that $60 billion of the new funds will be reserved for smaller financial institutions that specialize in working with SMBs. 

In the off-chance you get a lender to approve you for a PPP SBA loan, here are the key details:

  • Funds may be spent on payroll costs, employee salaries, interest payments on any mortgage, rent and utility payments, costs related to the continuation of group health care benefits, and interest payments on other debt obligations;
  • Loan amount is for up to 2.5 times your average monthly payroll costs, up to a $10 million limitation;
  • Maximum term is 10 years;
  • Maximum interest private lenders can charge is 4%;
  • No collateral or personal guarantee required;
  • No prepayment penalties;
  • Borrowers are eligible for loan forgiveness equal to certain costs (payroll, mortgage interest, rent, utility payments) in the 8 weeks following origination.

Other SBA programs to assist you during the coronavirus

In addition to the PPP, the SBA has three other programs to assist businesses during the coronavirus financial crisis.

1) Economic Injury Disaster Loans and Loan Advance. This is a permanent program under which SBA-authorized private lenders provide small businesses with working capital loans of up to $2 million to overcome temporary loss of revenue. Small business owners can apply for an advance of up to $10,000. An additional $60 billion is expected for the SBA’s disaster relief fund as part of the new round of stimulus.

2) SBA Express Bridge Loans. This program allows small businesses who currently have a business relationship with an SBA Express lender to access up to $25,000 with less paperwork. There has been no word on whether funds are still available for these loans. If you have an SBA Express loan and need an extension, we recommend contacting your private lender.

3) SBA Debt Relief Program. As part of the initial stimulus package, the SBA is providing relief for small businesses with existing SBA 7(a) loans, 504 loans, and microloans. The SBA will cover principal, interest, and fees, for six months. This relief is also available to new borrowers who take out loans between now and the end of September. 

Conventional Business Loans and Programs to Get You Through COVID-19

As we have seen, many small businesses have been left out in the cold by the federal government. Although there’s a chance you could qualify for one of the SBA loans, it may also be worth considering a conventional business loan

Short-term business loan. Also known as a “bridge loan”, this provides funding when you need quick access to capital. Some private lenders can provide the funds in as little as 24 hours. Most private lenders charge the prime interest rate plus an additional percentage based on the borrower’s risk profile. With the prime interest rate now at a record-low 3.25%, the average business loan is cheaper today than at any other time in history.

Business line of credit. A line of credit gives your business breathing room. It lets you borrow as much as you want and as often as you want, up to a predetermined credit limit. Funds are usually made available within 24 hours, making this another good option for covering immediate costs. The best thing is you only pay interest on what you use. Like business loans, business lines of credit are typically based on Prime, meaning they are quite affordable right now.

Invoice factoring. This is an alternative loan product where you sell your invoices to a lender (also called a factor) at a discount. If you’re worried about your customers paying you in time, then invoice factoring is an option to consider.

Home Equity Loan. A home equity loan allows homeowners to borrow against the equity in their property. Although this is technically a type of mortgage and not a business loan, a HEL (or home equity line of credit, HELOC) is often a simple way to access a large sum at a decent interest rate. Given this involves putting your personal property up as collateral, a HEL should only be reserved as a last option.

The Bottom Line

The federal government will probably keep pushing stimulus for as long as this crisis lasts, but that doesn’t mean it can be relied upon. As we’ve seen already, the sheer panic caused by COVID-19 has caused a backlog of applications – and the government and lenders can’t keep up. If, like millions of other American small businesses, your business needs to borrow funds to survive, then it pays to know and compare your options.