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Since the turn of the century, economic events such as The Great Recession and the COVID-19 pandemic have had a significant impact on small and medium-sized businesses. Many have been forced to close their doors due to economic strain, leaving thousands of employees without jobs.
Thankfully, the government has stepped in with various initiatives and loan programs to provide much-needed financial assistance. Use this blog as a guide to learn more about the impact of these economic events on businesses across the nation and how investing in government-guaranteed loans can assist borrowers in distress.
How the Great Recession and COVID-19 Pandemic Affected Small Businesses
From December 2007 to June 2009, the Great Recession had far-reaching effects on the global economy. Small and medium-sized businesses were particularly hit hard by the stock market crash. Many were unable to access traditional sources of funding, such as bank loans. This lack of access to capital put a strain on these companies, leading to many layoffs, furloughs, and business closures.
The same was true for the COVID-19 pandemic. With social distancing measures in place and many businesses struggling to stay afloat due to reduced revenue, accessing funds became even more of a challenge than in the recession just 12 years prior.
As we consider the effects of these events on the nation, we’ll observe the most significant government initiatives that have served as necessary aides during the most recent economic crisis: SBA Loans and USDA Loans.
Regardless of your business type, there’s a loan option available for you. Discover more about the loans we provide.
SBA Loans
SBA Loans, in particular, have been a lifeline for many small business owners over the years—and for good reason. Small businesses often struggle to qualify for traditional bank loans due to a lack of collateral, short-term income, and creditworthiness. To address this issue, SBA loans are typically easy to qualify for and come with some of the most flexible repayment terms of any loan type.
Some of the most popular kinds of SBA loans include the 7(a) and 504 programs. SBA 7(a) loans are excellent for providing businesses with working capital, and SBA 504 loans, on the other hand, are better suited for financing real estate purchases or renovations.
Key Characteristics
Unlike traditional bank loans, which typically require full repayment within two years or less, SBA Loans can be repaid over a period of up to 25 years, depending on the amount borrowed, the purpose of the loan, and the current lender’s appetite for credit risk.
Additionally, SBA loan rates tend to be lower than other credit products because the U.S. government guarantees them. This provides an added layer of protection against defaulting borrowers.
There are many more prominent characteristics of SBA loans, including—but not limited to—the following:
- Loan Repayment Assistance – The SBA Loan Program also offers loan repayment assistance for borrowers in times of distress, providing a much-needed financial cushion for cash-strapped small businesses.
- A 90% Guarantee for Future Lenders – This program allows banks and other SBA loan lenders to make loans to small businesses that may be seen as high-risk borrowers. With a 90% guarantee, banks understand that they can still recover their losses if a borrower defaults on the loan.
- Waived Loan and Renewal Fees – With its waived loan and renewal fees, SBA loans are more accessible and affordable to business owners, allowing them to access needed financing while ensuring they’re not taking on too much long-term debt.
Significant Initiatives
The U.S. Small Business Administration has fostered several notable programs in response to the economic downturn from the COVID-19 pandemic.
- Paycheck Protection Program (PPP)
In accordance with the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020, the SBA backed the creation of the Paycheck Protection Program. The PPP was created to provide small businesses with the proper resources to maintain their payroll, rehire employees who had been laid off, and cover applicable fees. Eligible borrowers could receive up to eight weeks of cash flow assistance through low-interest, forgivable loans 100% federally guaranteed by the SBA. - Restaurant Revitalization Fund (RRF)
The RRF was created as part of the American Rescue Plan. The program provides restaurants, bars, and other qualifying food establishments with up to $10 million in pandemic-related revenue loss per business and no more than $5 million per physical location. Grants may be used to cover expenses such as payroll, rent, utilities, supplies, and other related costs. - Shuttered Venue Operators Grant (SVOG)
Established by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (and later amended by the American Rescue Plan Act), the SVOG program was designed to support struggling entertainment venues. This provided over $16 billion in grants to shuttered venues altogether, with up to $10 million available for a single grant award. - Economic Injury Disaster Loan (EIDL)
The SBA created the COVID-19 EIDL and EIDL Advance programs to assist small businesses with recovery from the effects of a disaster, such as COVID-19. The program provides low-interest, long-term loans up to $2 million for small businesses, small agricultural cooperatives, and most private nonprofits in a declared disaster area that have suffered substantial economic injury.
USDA Loans
Along with SBA loans, government initiatives like USDA loans have made it possible for countless small business owners across America to keep their heads above water during difficult times. Issued by the U.S. Department of Agriculture (USDA), these government-guaranteed loans have helped small and rural businesses for decades.
Three primary types of USDA loans exist: the Business & Industry (B&I), Rural Energy for America (REAP), and 9003 loans. Each has its own eligibility requirements, but they all provide businesses with the same type of access to low-interest funding.
Key Characteristics
USDA Loans also come with attractive terms that make them particularly ideal for small business owners dealing with economic hardship. Like SBA loans, these financing options come with interest rates and repayment terms that are typically below market rate, which can help business owners deal with tight cash flow issues while they recover from their personal and financial losses.
As noted, USDA loans are typically made available in amounts up to a maximum of $25 million; however, the amount given to borrowers depends on the size of the operation and its industry sector. In general, these government-guaranteed financing options are often a borrower’s best option for gaining access to between $500,000 to $5 million dollars in working capital funding.
Significant Initiatives
- The B&I CARES Act Program – The B&I CARES Act Program, was a government-guaranteed loan program available to rural businesses, agricultural cooperatives, small businesses, federally-recognized Tribes, certain nonprofits, and more. The program was designed to help rural businesses and agricultural cooperatives use USDA B&I loans to meet short-term working capital needs due to the pandemic.
- The Food Supply Chain Program – As part of the USDA’s Build Back Better Initiative, the Food Supply Chain Guaranteed Loan Program was enacted to strengthen critical supply chains and boost the overall food system infrastructure to reduce costs. This groundbreaking program guarantees loans of up to $40 million for eligible lenders to finance food systems projects, expand and streamline food supply chain activities, etc.
Are You Reeling from the Effects of Economic Distress? Contact Madison One CUSO Today
Don’t let disaster stop your operations. Securing the funding you need can be challenging, but thankfully, you can rest assured knowing you have a lender like Madison One CUSO in your corner. We’re experts that can help you navigate all your loan options and find the program that best fits you. Small and rural businesses alike can rejoice in knowing we’re a certified government-guaranteed lender.
Determine your SBA or USDA loan eligibility and schedule a consultation today.
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