SBA loans of up to $2 million can help small businesses when the agency determines that they cannot obtain credit elsewhere. These loans can be used to cover expenses that would otherwise go unpaid because of the economic effects of the coronavirus.
Here’s more about how to qualify for an SBA economic injury disaster loan, how you can use one and how to apply.
The SBA provides low-interest economic injury disaster loans to small businesses affected by the coronavirus in designated areas. These loans can be used toward fixed debts, accounts payable and other unpaid expenses due to the coronavirus crisis.
If your business was doing well before the coronavirus outbreak, a loan might be a good idea if you need help, say, covering payroll, points out Bob Coleman, editor of the Coleman Report, a trade newsletter for small-business bankers.
The Treasury Department directly funds SBA disaster loans, unlike other SBA loan programs funded by SBA-approved lenders and guaranteed by the agency.
Compared with traditional loans from banks or credit unions, SBA disaster loans have some advantages:
— Lower interest rates. The interest rate for these loans is 3.75% for small businesses and 2.75% for nonprofits. This could be lower than a bank or credit union loan, depending on credit scores and other factors.
— Longer repayment terms. SBA loans have repayment terms of up to 30 years. Terms are based on your ability to repay.
— Lower monthly payments. Extended repayment terms, along with a lower interest rate, can make monthly payments more manageable.
How Can Your Small Business Qualify for an SBA Economic Injury Disaster Loan?
SBA economic injury disaster loans are available to:
— Small businesses
— Most private nonprofits
— Small agriculture co-ops
The SBA defines a small business as an independent business with fewer than 500 employees.
“We’re not bailing out the Wall Street banks or GM,” Coleman says. “We’re bailing out Main Street, giving money directly to small-business owners.”
Your business must have substantial economic injury and be located in a state with an economic injury declaration. For coronavirus disaster loans, states qualify for this declaration once at least five small businesses have suffered substantial financial losses.
When Should You Apply for an SBA Disaster Loan?
If you want a disaster loan, apply as soon as possible because funding is finite, and many businesses have been hurt by the COVID-19 pandemic.
This crisis is deeper than the Great Recession of 2008-09, says Rohit Arora, CEO and co-founder of small-business funding resource Biz2Credit. The effects of the virus hit so quickly, and no one was prepared, he adds.
“The ramifications are much wider and across the whole nation,” Arora says.
If you hope to borrow, have backup options as well. The SBA economic disaster injury loan isn’t your only choice.
“Business owners should pursue this option but should pursue all options because we simply don’t know how long it will take to process (the loans), how quickly the allocated funds will be exhausted, and what the final underwriting will look like,” says Gerri Detweiler, education director for business financing resource Nav.
Other types of SBA loans you could apply for are:
— 7(a) loans. Small businesses can access loans of up to $5 million for uses such as equipment, furniture, real estate, inventory and working capital.
— 504 loans. The SBA, along with nonprofits certified to work with the agency, can provide long-term fixed-rate loans of up to $5.5 million for assets such as equipment or real estate.
If your business hasn’t been as hard hit by the coronavirus as others, now might be the time to apply for either a conventional loan or an SBA-backed loan from a bank or credit union, Detweiler says.
Small-business owners have several options for staying afloat other than taking out an SBA loan, but many are risky.
Some of those choices include:
— Liability negotiation. Landlords, creditors, utility companies and suppliers may allow you to postpone payments.
— Home equity loans. With mortgage rates near all-time lows, a business owner could take out a home equity loan or line of credit to cover costs. “But if the business does not pick up, you just put your house on the line,” Detweiler says.
— Business credit cards. You can access capital quickly with credit cards, which might free up cash flow to keep you going. Credit cards with 0% APR offers can give you time to pay off expenses interest-free.
— Loans from friends and family members. This could work, as long as “they understand the risk they’re taking,” Detweiler says. You might not be able to pay back the loan right away or at all.
— Borrow from a retirement fund. This could be very risky, as many people haven’t saved enough for retirement. “I’d hate to see a situation where a business owner taps a retirement fund to stay afloat, business goes under, and you’ve lost both the business and retirement savings,” Detweiler says.
— Other loan options. Businesses would likely get approved and receive money more quickly from an online lender than they would from banks or credit unions, Detweiler says. Higher-interest alternative lenders are another possibility, as long as you can pay them back quickly.
How Can You Apply for an SBA Disaster Loan?
Review the SBA’s webpage on coronavirus-related loans and prepare your application. You’ll need to get your business financial statements in order, Coleman says.
Detweiler adds: “You have to demonstrate an economic impact, so you need to have something ready.”
Applications are sent directly to the SBA. Applying online is fastest, but you can also send an application by U.S. mail.
If you have questions, contact the SBA disaster assistance customer service center at 800-659-2955 or [email protected] Here is what you will need to complete your application:
— Contact information and Social Security numbers for all applicants
— Employer Identification Number
— Business financial statements, including earnings statements and balance sheets
Processing time for SBA economic injury disaster loans may be two to three weeks, and loans could be disbursed within days of closing, says Carol R. Wilkerson, SBA press director.
By comparison, processing expedited SBA loans after Hurricane Sandy in 2012 took almost 45 days. For Hurricane Florence six years later, the average time was about seven days. But the SBA was better staffed, and demand for loans was lower than expected.
“I’m concerned at the size and scope of this — how quickly they’ll be able to ramp up to process the applications and disburse funds,” Detweiler says.
In the coming weeks and months, the SBA will face a lot of pressure to expedite loans. Adds Arora: “My concern is that they need to act fast.”
Coleman says he has discussed this need with a restaurant owner in his home state of California. The owner is worried about finding enough money to pay his employees while his restaurant is closed during the coronavirus crisis.
“These people want to do the right thing. But if they don’t have enough money, they can’t do it. That’s going to reverberate through the economy,” Coleman says. “That’s why we need to take care of small businesses.”
After the current U.S. Congress was sworn in, a predictable chorus of merchants, lobbyists, and lawmakers demanded new interchange price caps and other government mandates to decrease credit card interchange fees for merchants. The tired attacks on credit cards are an easy narrative that focuses almost exclusively on the cost side of the ledger, while completely ignoring the cards’ important role in the economy and the regressive effects of interchange regulation.
To lawmakers blindly acting on behalf of retailers, regulation is a brilliant idea—regardless of how it affects their constituents. For decades, they have promised these interventions would eventually benefit consumers. But the lessons from the Durbin Amendment in the United States and price cap regulation in Australia is clear. Although some policymakers bemoan the current economic model, arbitrarily “cutting” rates for the sake of cuts completely ignores the economic reality that as billions of dollars move to merchants, billions are lost by consumers.
For the uninitiated, let’s break down what credit interchange funds: 1) the cost of fraud; 2) more than $40 billion in consumers rewards; 3) the cost of nonpayment by consumers, which is typically 4% of revolving credit; 4) more than $300 billion in credit floats to U.S. consumers; and 5) drastically higher “ticket lift” for merchants.
These are just some of the benefits. If costs were all that mattered, American Express wouldn’t exist. Until recently, it was by far the most expensive U.S. network. Yet, merchants still took AmEx because they knew the average AmEx “swipe” was around $140, far more than Visa and Mastercard.
Put simply, for a few basis points, interchange functions as a small insurance policy to safeguard retailers from the threat of fraud and nonpayment by consumers. Consider the amount of ink spilled on interchange when no one mentions that the chargeoff rate for issuing banks on bad credit card debt exceeds credit interchange.
Looking abroad, interchange opponents cite Australia, which halved interchange fees nearly 20 years ago, as a glowing example of how to regulate credit cards. In truth, Australia’s regulations have harmed consumers, reduced their options, and forced Australians to pay more for less appealing credit card products.
First, the cost of a basic credit card is $60 USD in many Australian banks. How many millions of Americans would lose access to credit if the annual cost went from $0 to $60? Can you imagine the consumer outrage?
In a two-sided market like credit cards, any regulated shift to one side acts a massive tax on the other. For Australians, the new tax fell on cardholders. There, annual fees for standard cards rose by nearly 25%, according to an analysis by global consulting firm CRA International. Fees for rewards cards skyrocketed by as much as 77%.
Many no-fee credit cards were no longer financially viable. As a result, they were pulled from the market, leaving lower income Australians, as well as young people working to establish credit, with few viable options in the credit card market.
Even the benefits that lead many people to sign up for credit cards in the first place have been substantially diluted in Australia because of the reduction of interchange fees. In fact, the value of rewards points fell by approximately 23% after the country cut interchange fees.
Efforts to add interchange price caps would have a similar effect here in the U.S. A 50% cut would amount to a $40 billion to $50 billion wealth transfer from consumers and issuers to merchants. For the 20 million or so financially marginalized Americans, what will their access to credit be when issuers find a $50 billion hole in their balance sheets?
The average American generates $167 per year in rewards, according to the Consumer Financial Protection Bureau. Perks like airline miles, hotel points, and cashback rewards would be decimated and would likely be just the province of the rich after regulation. Many middle-class consumers could say goodbye to family vacations booked at almost no cost thanks to credit card rewards.
As the travel industry and retailers fight to bounce back from the impact of the pandemic, slashing consumer rewards and reducing the attractiveness of already-fragile businesses is the last thing lawmakers and regulators in Washington should undertake.
Proposals to follow Australia’s misguided lead in capping interchange may allow retailers to snatch a few extra basis points, but the consequences would be disastrous for consumers. Cards would simply be less valuable and more expensive for Americans, and millions of consumers would lose access to credit. University of Pennsylvania Professor Natasha Sarin estimates debit price caps alone cost consumers $3 billion. How much more would consumers have to pay under Durbin 2.0?
Members of Congress and other leaders should learn from Australia and Durbin 1.0 to avoid making the same mistake twice.
—Drew Johnson is a senior fellow at the National Center for Public Policy Research, Washington, D.C.
More than ever before, your debt and credit records can negatively impact you or your family’s life if left unmanaged. Sadly, many Americans feel entirely helpless about their credit score’s present state and the steps they need to take to fix a less-than-perfect score. This is where Michael Carrington, founder of Tier 1 Credit Specialist, comes in. Michael is determined to offer thousands of Americans an educated, informed approach towards credit restoration.
Michael understands the plight that having a bad credit score can bring into your life. His first financial industry job was working as a home mortgage loan analyst for one of the nation’s largest lenders. Early on, he had to work a grueling schedule which included several jobs seven days a week while putting in almost 12-hour days to make $5,000 monthly to get by barely.
“I was tired of living a mediocre life and was determined to increase the value that I can offer others through my knowledge of the finance industry – I started reading all of the necessary books, networking with industry professionals, and investing in mentorship,” shares Michael Carrington. “I got my break when I was able to grow a seven-figure credit repair and funding organization that is flexible enough to address the financial needs of thousands of Americans.”
With his vast experience in the business world, establishing himself as a well-respected business leader, Michael Carrington felt he had the power to help millions of Americas in restoring their credit. Michael learned the FICO system, stayed up to date on the Fair Credit Reporting Act (FCRA), found ways to improve his credit score, and started showing others.
The Tier 1 Credit Specialist uses a tested and proven approach to educate their clients on everything credit scores. Michael is leveraging his experience as a home mortgage professional, marketing executive, and global business coach to inform his clients. He and his team take their time to carefully go through their client’s credit records as they try to find the root of their problem and find suitable financial solutions.
The company is changing lives all over America as it helps families and individuals to repair their credit scores, gain access to lower interest rates on loans and get better jobs. What Tier 1 Credit Specialists is offering many Americans is a chance at financial freedom.
Michael Carrington has repaired over $8 million in debt write-ups and has helped fund American’s with over $4 million through thousands of fixed reports. “I credit our success to being people-focused,” he often says. “The amount of success that we create is going to be in direct proportion to the amount of value that we provide people – not just our customers – people.”
Because of its ‘people-focused goals, the Tier 1 Credit Specialist is determined to help millions of Americans achieve financial literacy. It is currently receiving raving reviews from clients who are completely happy with the credit repair solutions that the company has provided them.
Today, Michael Carrington is continuing with a new initiative to serve more Americans who suffer from bad credit due to little or no access to affordable resources for repair.
The Tier 1 Credit Socialist brand is changing the outlook of many families across America. To do this, the company has created an affiliate system that will provide more people with ways of earning during these tough economic times.
As a well-respected international business leader and entrepreneur with numerous achievements to his name Michael Carrington aims to help millions of Americans achieve the financial freedom, he is experiencing today. Tier 1 Credit Socialist is one of the most effective credit repair brands on the market right now, and they have no plans for slowing down in 2021!
Learn more about Michael Carrington by visiting his Instagram account or checking out the Tier 1 Credit Specialist website.
When it comes to personal finance, nothing is guaranteed. That goes double for credit. That’s why, no matter how perfect your credit or how many times you’ve applied for a new credit card, there’s always that moment of doubt while you wait for a decision.
Issuing banks look at a wide range of factors when making a decision — and your credit score is only one of them. They look at your entire credit history, and consider things like your income and even your history with the bank itself.
For example, if you defaulted on a credit card with a given bank 15 years ago, that mistake is likely long gone from your credit reports. To you and the three major credit bureaus, it is ancient history. But banks are like elephants — they never forget. And that mistake could be enough to stop your approval.
But does it go the other way, too? Does having a bank account that’s in good standing with an issuer make you more likely to get approved? While there’s no clear-cut answer, there are a few cases when it could help.
A good relationship may weigh in your favor
Credit card issuers rarely come right out and say much about their approval processes, so we often have to rely on anecdotal evidence to get an idea of what works. That said, you can find a number of stories of folks who have been approved for a credit card they were previously denied for after they opened a savings or checking account with the issuer.
These types of stories are more common at the extreme ends of the card range. If you have a borderline bad credit score, for instance, having a long, positive banking history with the issuer — like no overdrafts or other problems — may weigh in your favor when applying for a credit card. That’s because the bank is able to see that you have regular income and don’t overspend.
Similarly, a healthy savings or investment account with a bank could be a helpful factor when applying for a high-end rewards credit card. This allows the bank to see that you can afford its product and that you have the type of funds required to put some serious spend on it.
Having a good banking relationship with an issuer can be particularly helpful when the economy is questionable and banks are tightening their proverbial pursestrings. When trying to minimize risk, going with applicants you’ve known for years simply makes more sense than starting fresh with a stranger.
Some banks provide targeted offers
Another way having a previous banking relationship with an issuer can help is when you can receive targeted credit card offers. These are sort of like invitations to apply for a card that the bank thinks will be a good fit for you. While approval for targeted offers is still not guaranteed, some types of targeted offers can be almost as good.
For example, the only confirmed way to get around Chase’s 5/24 rule (which is that any card application will be automatically denied if you’ve opened five or more cards in the last 24 months) is to receive a special “just for you” offer through your online Chase account. When these offers show up — they’re marked with a special black star — they will generally lead to an approval, no matter what your current 5/24 status.
Credit unions require membership
For the most part, you aren’t usually required to have a bank account with a particular issuer to get a credit card with that bank. However, there is one big exception: credit unions. Due to the different structure of a credit union vs. a bank, credit unions only offer their products to current members of the credit union.
To become a member, you need to actually have a stake in that credit union. In most cases, this is done by opening a savings account and maintaining a small balance — $5 is a common minimum.
You can only apply for a credit union credit card once you’ve joined, so a bank account is an actual requirement in this case. That said, your chances of being approved once you’re a member aren’t necessarily impacted by how much money you have in the account.
In general, while having a bank account with an issuer may be helpful in some cases, it’s not a cure-all for bad credit. Your credit history will always have more impact than your banking history when it comes to getting approved for a credit card.