Guide To Applying For An SBA Loan
The loan options and pathways offered by the Small Business Association are not always easy to understand. I’ve put together a quick guide, including the answers to frequently asked questions about SBA loans and how to apply to help you avoid confusion.
In This Article:
What are SBA loans?
There are two types of SBA loans: PPP and EIDL.
PPP (Paycheck Protection Program) loans are large loans (up to $10 million) made available to small businesses. What makes the PPP distinct is that the loans can be forgiven in full given specific requirements — read more about that in the next section.
EIDL is a smaller loan (up to $2 million) also given to small businesses, but with slightly different parameters. What makes EIDL distinct is that businesses that apply get a $10,000 advance that is forgiven immediately. So basically, that is a free $10k for applying. You Have no reason not to.
Can SBA loans be forgiven?
PPP loans can be forgiven in full if the borrower follows a few “rules.” First and foremost, they cannot dismiss any employees for at least 24 weeks after receiving the loan. Exceptions can be made for unavoidable dismissals like those related to health issues, but in general, the program is meant to keep the unemployment rate from getting too high.
Also, at least 60% of a PPP loan must be used for payroll expenses if the loan is to be forgiven.
EIDL loans cannot be forgiven, although the advance you receive when you take the loan ($1,000 per employee up to $10,000) is ‘technically’ forgiven automatically.
Can I take both an EIDL loan and a PPP loan?
Yes. Most business owners do not realize this, so they neglect to take advantage of both. In fact, a business can use the forgivable PPP loan to pay back the EIDL loan… if they play their cards right. Keep in mind, though, that you can’t use both loans for the same thing, even partially. For example, if you use your PPP loan to cover payroll, rent, and office renovations, then you cannot use your EIDL loan for any of those things.
Applying for a PPP Loan
Seller's History and Motivations
Basically, all businesses with 500 or fewer people are eligible for a PPP loan. That being said, there are restrictions. A business becomes ineligible for the loan if they are involved in:
- Hedge funds.
- Private equity firms.
- Sex work.
- Farms and ranches.
- Political lobbyists.
- An owner who is more than 60 days behind on child support payments.
- Bankruptcy proceedings.
List of Current Employees and Organizational Chart
Although you’ll apply through the SBA, you first need to find a lender who will actually give you the money once you do. These participating lenders are known as SBA approved 7(a) lenders, and there are over 1,800 across the US.
If you’re lucky, the lander you use already may be participating. Ask them if they are, and they will probably at least be able to point you in the right direction. Or for a more DIY solution, take a look at this list of participating PPP lenders from the SBA.
Be careful finding a registered lender because many scam organizations claim to offer SBA loans that actually want to bilk you out of money.
Applying for an EIDL Loan
Am I eligible for EIDL?
The eligibility requirements are the same for both types of SBA loans.
Where should I find a lender?
All EIDL loans are acquired directly through the SBA website. That’s one of the advantages of EIDL over PPP loans; they are more straightforward to obtain.
Where should I apply for an EIDL loan?
Apply on the SBA website through this EIDL loan application portal.
The SBA loans currently being issued are unprecedented in terms of their financial reach and magnitude. If you’re a small business owner and you find yourself struggling because of coronavirus, make sure to utilize them!
For some idea of the things you should be wary of when considering SBA loans, listen to Dave Ramsay talk about why the loans are dangerous in this video!
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