May 8, 2020
According to an article published on May 6 in the Triangle Business Journal entitled
When PPP Runs Out, Businesses Could be Shut Out from SBA Loans Until July
by
Ashley Portero
, the legislative package that authorized a second round of Paycheck Protections Program (PPP) loans last month includes language that says the Small Business Association’s (SBA) regular 7(a) loan program will shut down once funding is depleted. That means businesses would not be able to receive an SBA loan until at least July 1, when the 7(a) program is scheduled to be funded again. The SBA reported that $135 billion of PPP funds had yet to be allocated as of May 5.
That could cut off much-needed capital from small businesses as they attempt to recover from economic hits caused by the Covid-19 pandemic, according to an email the National Association of Government Guaranteed Lenders sent to its members April 22, the day after the U.S. Senate reached a deal for second round of Covid-19 relief funding.
The 7(a) loan program is the SBA's primary program for providing financial assistance to small businesses. The terms and conditions, like the guaranty percentage and loan amount, vary by the type of loan. For example, the Standard 7(a) loan allows small businesses to borrow up to $5 million. The SBA guarantees 85% for loans up to $150,000 and 75% for loans greater than $150,000. Lenders and borrowers can negotiate the interest rate, but it may not exceed the SBA maximum. Revolving lines of credit are for up to 10 years. Other types of 7 (a) loans are for much smaller amounts like $350,000 and $500,000, depending on the type and purpose of the loan. Some SBA 7(a) loans offer up to 10-year repay the loan. Bank loans could require five-year terms.
According to the article, Alex Sanchez, CEO of the Florida Bankers Association has been in communication with U.S. Senator Marco Rubio (R-Fla.) about the potential SBA 7(a) program shut down. Sanchez said he was told the legislative language that says the program will be out of money when PPP funds are exhausted was an "administrative error." We will let you know if anything changes.
Feel free to contact any member of our team at (610) 828-1900 (PA) or (732) 341-3893 (NJ) with questions. Rich Higgins, CPA, managing principal – New Jersey office can be contacted at
Richard.Higgins@MCC-CPAs.com
. I can be reached at
Marty.McCarthy@MCC-CPAs.com
. As always, we are happy to help.
Stay safe,
Marty McCarthy, CPA, CCIFP
Managing Partner
McCarthy & Company
Source: When PPP Runs Out, Businesses Could be Shut Out from SBA Loans Until July.
Ashley Portero.
Triangle Business Journal. May 6, 2020.
Disclaimer: This alert is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice, and cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code. We strongly advise you to seek professional assistance with respect to your specific issue(s).
