In this article, we tackle SBA loan forgiveness. We identify what SBA loans are forgivable and how to get those SBA loans forgiven. This article is part of our series, SBA Loans for Small Business Owners: The Complete Beginners Guide, we share our experiences and expertise to answer questions that small business owners have about SBA loans.
By Thomas Tramaglini, Chief Operations Officer
Business Owners Confused
Are you a small business owner that has an SBA loan? Do you receive an SBA loan in recent years? Is your loan forgivable? Are parts of your loan forgivable?
Business owners are confused and continue to be confused.
According to the SBA, there are over 31 million small businesses in the United States. Using SBA data, of the 31 million+ small businesses, over the last 5 years approximately 12 million loans have some sort of SBA tag to it. So, about approximately 1 in 3 small business owners have recently had some sort of SBA small business loan. We believe the percentage could be closer to 1 in 2 with the number of small businesses that the SBA Office of Advocacy also suggests that many businesses have no employees, or they may be dormant.
Since so many small business owners have a loan associated with the SBA in some way, we frequently are asked if they must pay back their SBA loan.
Access to SBA Loans Blew Up in 2020
Before 2020, I am not sure if anyone had ever seen an SBA loan be forgiven. In fact, according to the Small Business Credit Survey suggests that before the Pandemic, only about 1 in 5 small businesses were actually able to secure an SBA loan of some type.
So, we know that since April 2020, the number of small business owners having some sort of associated SBA loan is 30%-50% higher.
Mass Confusion Prevalent
Regardless of your educational level, time in business or the size of SBA loan, it was and still is clear that small business owners are confused about what is forgivable and what is not. A recent report in the Wall Street Journal suggests that the majority of small business owners continue to be confused about SBA loans.
What is considered “Loan Forgiveness?”
The advisors at Beacon Client Solutions are asked about Loan Forgiveness every day. Simply, Loan Forgiveness means that you do not have to pay back the loan.
With this definition, we still live by one tenet set by Chief of Operations, Thomas Tramaglini: Until the loan is forgivable, the business owner is responsible. This is good advice considering the confusion surrounding SBA loans.
What SBA Loans are Forgivable?
Below is a list of SBA loans (and we included advances/grants) we have helped our clients get or manage and whether or not the loans are forgivable:
Payroll Protection Program (PPP)
PPP loans were designed to provide an incentive for small businesses to keep workers on the payroll (List of PPP allowable uses). Like other SBA loans, PPP loans were underwritten, funded and forgiven by approved SBA lenders. So far, there have been 2 rounds of PPP available to small business owners. PPP loans are forgivable if the borrower spent the funds and can provide proof that the funds were used for the intended purposes. To date, about 87% of the PPP loans have been forgiven.
Getting your PPP loan forgiven is not hard as long as you used the money for what it was intended for. The SBA has made it easier to apply for forgiveness with the website https://directforgiveness.sba.gov/requests/borrower/login/?next=/ Depending on if the bank the PPP loan was funded from opts to use this portal, this site is easy to apply for the PPP loan through. Otherwise, each bank either directly has their own process (PNC Bank, Fountainhead) or may use a 3rd party for forgiveness (Scratch).
Economic Disaster Injury Loans (EIDL)
The EIDL loan program was extended to Pandemic relief under the CARES and American Recovery Acts. EIDL loans are loans directly provided to small business owners by the US Department of Treasury. After the initial EIDL loans were provided for 6 months of working capital, the loan was extended to those who qualified for up to 24 months. The terms of this loan are 2.75% (non-profit) to 3.75% (for-profit) and go out to 30 years. This direct long-term loan program from the SBA is not forgivable.
Verdict: Not Forgivable
EIDL Advance | EIDL Targeted Advance | EIDL Supplemental Targeted Advance
EIDL Advances has been rolled out in a host of different ways. That is, the government has found different ways to provide funds set aside for small businesses. From $1,000 per employee up to $10,000 for any small business that qualified to more targeted small businesses that mainly drove funds to lower income areas generally, EIDL Advance programs have been intended to not have small business owners pay back funds. It is important to note that some EIDL Advances were rolled into PPP loans however, SBA guidance is all over the place on that topic, so our disposition is that if you received an EIDL Advance, you likely do not have to pay the funds back.
Verdict: Forgivable
SBA 7(a) and Express Loan (same guidelines)
SBA 7(a) loans are the most common loan program offered by SBA. The SBA suggests that the 7(a) can be used for business real estate purchases, as well as short- and long-term working capital, refinancing current business debt, as well as the purchase of furniture, fixtures and supplies. The maximum loan amount for a 7(a) loan is $5 million. Key eligibility factors are based on what the business does to receive its income, its credit history, and where the business operates. SBA 7(a) loans are not forgivable.
Verdict: Not Forgivable
SBA 504
The Certified Development Companies/504 Loan Program provides long-term, fixed rate financing of up to $5 million for major fixed assets that promote business growth and job creation. 504 loans are available through SBA’s community-based partners who regulate nonprofits and promote economic development within their communities. CDCs are certified and regulated by the SBA. SBA 504 are repayable over 10 – 20 years and pegged to an increment above the current market rates. SBA 504 loans are not forgivable.
Verdict: Not Forgivable
Microloans
The SBA microloan program provides loans up to $50,000 to help small businesses and certain not-for-profit childcare centers start up and expand. The average microloan is about $13,000. SBA provides funds to specially designated intermediary lenders, which are nonprofit community-based organizations with experience in lending as well as management and technical assistance. These intermediaries administer the Microloan program for eligible borrowers.
Verdict: Not Forgivable
Implications
Over the past two years our team at Beacon Client Solutions has been hit with many questions regarding whether or not one has to pay back their SBA loans. In this article, I have provided an overview of different SBA loans and whether they are forgivable.
If you have any questions, you can contact us or reach out directly to SBA.
References
SBA EIDL Loan Data: https://www.sba.gov/sites/default/files/2022-02/COVID-19%20EIDL%20TA%20STA_02032022_Public-508.pdf
SBA PPP Loan Data: https://www.sba.gov/funding-programs/loans/covid-19-relief-options/paycheck-protection-program/ppp-data
SBA Office of Advocacy Data: https://cdn.advocacy.sba.gov/wp-content/uploads/2020/11/05122043/Small-Business-FAQ-2020.pdf
SBA Loan Descriptions: https://www.sba.gov/funding-programs/loans
Dr. Thomas Tramaglini is the Director of Operations and Negotiation for Beacon Client Solutions, a company that supports small businesses on a host of fronts, especially MCA debt. Although located in on the famous Jersey shore, BRP Onesta serves clients in all 50 states, Puerto Rico, Mexico and Canada.
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