Congressman warns small businesses owners of possible duplicating loan process
BATON ROUGE - Small business owners have had about a week now to apply for low-interest SBA loans up to $2 million that can be paid off over thirty years.
Scott Russell, who owns Orange Theory Fitness in Town Center, says he’s hit a snag in the online loan process. This delay comes as another possible resource for him and other business owners are in the works.
“You have to understand it, but understanding it does not take away the frustration,” Russell said of the time-consuming online loan process.
Russell has been filling out his SBA disaster loan application online since last Thursday when all parishes in Louisiana were deemed eligible to apply. Interest rates were set at 3.75% for for-profit businesses, and 2.75% for non-profits.
“There is so much information and documentation that they’re requiring. Which I understand, it’s a government program,” Russell said.
He was able to complete a majority of paperwork through a login portal on the SBA’s website. But Russell has yet to complete the entire process.
“I had days where I stayed up ‘til 4:30 in the morning. Every 15 minutes trying to upload the documents, hoping there would be less traffic on the website but was never able to upload it,” Russell said.
“We’ve never had a nationwide disaster such as this,” Susheel Kumar with the SBA said.
Kumar says the economic fallout surrounding COVID-19 is not the usual regional disaster they are regularly equipped to deal with.
“Because the application volume is very specific to the area that’s been declared a disaster,” Kumar said to describe the typical disaster that requires SBA assistance.
Small businesses across the U.S. are beginning to feel the financial burden due to coronavirus orders put in place to help mitigate the spread of the disease and flatten the curve of infection.
In light of the country’s current economic status, the SBA has streamlined, to some degree, the normal loan requirements.
“What we have done is taken the collateral requirement out of the equation.
"Normally there would be a real estate requirement for collateral. That’s gone. There are certain funding requirements, that’s gone,” Kumar said.
Payments on the disaster loans can also be deferred for up to a year, with businesses eligible to receive $500,000 for the first six-month term.
Kumar says that as of today, once a small business’ loan application is approved, it could take 25 to 30 days before the business receives those funds directly from the IRS. He stressed that, because this situation is fluid, that timeline could change at any time.
Russell says he suspects that an overflow of applications has led to certain changes over the past week on the SBA Disaster Loan login web page.
“You can’t get on, you can’t check your status, you can not log in. It doesn’t even give you an option to log in,” Russell said.
While small business owners try to hammer out this first disaster loan, Congressman Garrett Graves says another SBA-backed loan program is on the way, bundled with congresses’ $2 trillion dollar stimulus package.
“It’s a new program, it’s a modification of an existing program that’s called 7-a. It is expected to fund perhaps 350 billion dollars in federally-guaranteed loans,” Graves said.
There are a few differences between the current SBA disaster loan being offered and the slightly modified 7(a) process that the SBA already uses.
One difference is that federally insured banks would become involved in handling paperwork as to not overwhelm the SBA website. And second, the new program has a new payment forgiveness plan for up to 8 weeks.
“It does provide the opportunity that the funds that a small business spends on payroll, on mortgage, on utilities, on healthcare costs, that those potential could be forgiven. So it could effectively convert from a loan to a grant,” Graves said.
Below is a bullet-point comparison of the current and future SBA-backed loans:
CURRENT SBA LOAN
- INTEREST RATE: 2.75% NON-PROFITS, 3.75% FOR-PROFITS
- UP TO $2 MILLION IN ASSISTANCE (UP TO $500,000 FOR FIRST 6 MONTHS)
- 30-YEAR TERM
- ONE YEAR OF DEFERRED PAYMENTS
NEW 7(a) LOAN
- INTEREST RATE: 4% FOR BOTH NON AND FOR-PROFIT
- UP TO $10 MILLION IN ASSISTANCE
- 10-YEAR TERM
- 6 MONTHS OF DEFERRED PAYMENTS
- POSSIBLE FORGIVENESS PLAN FOR FIRST 8 WEEKS
Graves also wants to warn local business owners applying for the available disaster relief loan. He says that a provision in the legislation being passed would make those who receive a current disaster loan to be ineligible for a possible forgiveness plan under the new loan program.
“What it says is that you can get both loans. But that you can only be forgiven for this new 7a loan. And if you, for example, get a disaster loan tomorrow, and then use it to pay payroll and mortgage and healthcare and utilities, only to come back in a month and apply for the new loan, you can’t get forgiven for those costs you’ve already covered under your disaster loan,” Graves said.
The House of Representatives could vote on the stimulus package as early as Friday. But Graves says that it will still take at least 10 days or more for the SBA to set up the slightly modified loan process.