Loan approvals increase, but small businesses may need bridging loans while waiting for disaster financing

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Since the start of the pandemic, the SBA has provided more than $ 1,000 billion in economic aid through COVID aid to help hard-hit small businesses across the country survive. As of October 17, Paycheck Protection Program (PPP) exemption requests had been received for approximately 70% of the total PPP loan volume. For 2020 PPP loans, around 92% requested a discount.

After P3s ended, small business owners had to look for other sources of funding. The SBAs COVID-19 Economic Disaster Loan Relief accepts applications until December 31, 2021. As of October 14, more than 3.8 million COVID EIDLs totaling $ 280 billion have been approved and applications remain open until December 31, 2021.

The COVID EIDL program policy changes that went into effect on September 8 include:

1. An increase in the maximum loan limit to $ 2 million

2. Expansion of use of funds to include payment and prepayment of non-federal commercial debt incurred at any time (past or future) and payment of federal debt

3. An extension of the deferral period to 24 months from origination for all loans

4. Simplify the affiliation requirement for an affiliate to be a business that the owner controls or in which an owner has 50% more ownership

5. An additional path to meet program size standards for companies assigned a NAICS code starting with 61, 71, 72, 213, 3121, 315, 448, 451, 481, 485, 487, 511, 512, 515, 532 or 812

However, one of the common challenges for business owners regarding EIDL financing is the time it takes to get the money into the hands of borrowers. The SBA has a massive amount of claims to process, and it has many regulations that it must adhere to before it can release funds for any given business. The result is that many businesses will receive an initial approval, but it can sometimes take 3-4 months for the money to arrive.

So what does a business owner who needs quick cash to survive do while waiting for EIDL funding?

Interim financing can alleviate the need for immediate cash flow for business owners, while the SBA does the essential work of reviewing and approving this next phase of EIDL financing for US small businesses.

A bridge loan, also called bridge financing or spread financing, is a short-term loan that can last from a few weeks to a month. This short-term financing solution is generally used to form a “bridge” between more traditional loans to ensure smooth and efficient operations.

Although we are past the peak of the pandemic, small business owners still worry about the financial stability of their businesses, especially as fuel costs and labor costs continue to rise. . An EIDL loan can take 3 to 4 months to process. With bills due, many businesses don’t have that kind of time to wait for funding to arrive.

How can a bridging loan help your business?

Now that non-repayable PPP loans are no longer available, securing financing on favorable terms can take time. In tough times, business owners may need to capitalize quickly. Banks can take months to review all of your business information and make a decision. Bridge loans are designed to fill the void.

A bridging loan can be useful for commercial real estate purchases which often require companies to act quickly in order to take advantage of the opportunity before another interested buyer does. Businesses also frequently need quick financing to make inventory and equipment purchases, as well as acquisitions. In these scenarios, a business may take out a short-term bridging loan and then refinance the stock once it has opted for a longer-term financing option.

It is important to note that bridging loans often have higher interest rates due to their shorter duration. Depending on the situation, the pros can outweigh the cons, and the rates can be very reasonable for companies with a strong credit history and a good track record.

Meanwhile, small business loan approval percentages at large banks (over $ 10 billion in assets) fell from 13.9 percent in August 2021 to 14 percent in September, and approvals for small banks also rose in September to 19.5% from 19.3% the previous month, according to at the latest Biz2Credit ™ Small Business Loan Index.

Business owners are investing in their businesses and banks are increasingly willing to lend, but not at the speed many had hoped for. Still, it’s a good sign for the economy that all categories of small business lenders – including bank and non-bank lenders – have seen their loan approval percentages increase every month for the past five months.

Along with traditional banks, non-bank lenders remain a viable source of funding for businesses that need cash quickly. Their approval rates rose again in September.

For example, approved institutional lenders reached 24.5% in September, up from 24.3% of funding requests in August and 2.3 percentage points from a year ago. Meanwhile, approvals from alternative lenders rose from 25.2% in August to 25.4% of funding requests in September 2021. Last year, the percentage of alternative lenders in September was 23.1%.

Credit unions approved 20.6% in September, up a tenth of a percent from August, but down from 21% in September 2020.

These numbers are solid, but there is a lot of room for improvement. Overall, the economy has rebounded well after the pandemic, but it is far from perfect. Small business owners still face the triple whammy of rising fuel, material and labor costs, and continue to seek debt financing to cover these costs as they recover. on foot after the pandemic.


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