Small Business Loans—COVID-19 Financial Assistance

Small Business Loan Request Letter Small Business Loans—COVID-19 Financial Assistance

A Quick Guide to Small Business Loans and COVID-19 Relief Options

Small businesses were hit hard by the COVID-19 pandemic. In a few weeks of the public health crisis, 43% of businesses had closed temporarily. A number of stimulus bills were passed to provide urgent capital—in the form of debt relief programs, loans, and grants—to the impacted small businesses.

While most of the programs have ended, some are still open. This guide will focus on the open small business loans and COVID-19 relief options that can help you with your budget. When submitting your loan application, to draft a loan request letter that will help you secure the funding you need.

The CARES Act and Small Business Loans

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. It was designed to provide temporary financial assistance to small businesses, primarily for operating expenses and debt refinancing.

As a federal agency that provides funding options for small businesses across the country in normal circumstances, the Small Business Administration (SBA) facilitates the so-called SBA loans. They are partially guaranteed by the agency and issued by partner lenders, such as banks and credit unions. Generally, SBA loans have better terms compared to other types of loans offered by different lenders.

Based on the CARES Act, the SBA used to offer several COVID-19 relief programs, but some are no longer active, including:

  • Paycheck Protection Program
  • Shuttered Venue Operators Grant
  • Restaurant Revitalization Fund

The options that are still available are:

  • COVID-19 Economic Injury Disaster Loan (EIDL)
  • Small Business Debt Relief Program

COVID-19 Economic Injury Disaster Loan (EIDL)

The COVID-19 Economic Injury Disaster Loan (EIDL) program provides low-interest loans to support the recovery of small businesses and private nonprofits. These funds should cover working capital and help owners pay business debts (past, present, and future). You cannot use EIDL funds to expand the business or pay the startup costs of a new business.

The table below outlines the terms of the COVID-19 EIDL loans:

Loan TermsSpecifications
Loan amountUp to $2 million
Repayment termUp to 30 years
Interest rates3.75% for small businesses and 2.75% for nonprofits
CollateralRequired for loan amounts exceeding $25,000
Personal guaranteesRequired for loans bigger than $200,000
FeesOne-time $100 fee for loans exceeding $25,000
Credit score
  • 570 for loans of up to $500,000
  • 625 for loans that exceed $500,000

Who Can Apply for the COVID-19 Economic Injury Disaster Loan?

COVID-19 EIDL funds are reserved for businesses that have been operational at least since January 31, 2020. Sole proprietors, small businesses, tribal groups, cooperatives, and nonprofits can apply for the COVID-19 EIDL funds. You can find the detailed eligibility requirements for the program in Section 2 of the FAQ document. The program will end on December 31, 2021, or earlier if the funds are exhausted.

Grants Provided Under the COVID-19 EIDL

The COVID-19 EIDL program also provides two small business loan advances. Unlike loans, these advances don’t have to be repaid. You must apply for the COVID-19 EIDL to be considered for the grants. If you qualify, the SBA will send an invitation via email for you to apply for the advances once you submit your loan application. Even if you don’t get or accept the loan, you can still get the advance.

The COVID-19 EIDL advances are:

  1. Targeted EIDL Advance—This is a grant of up to $10,000 for small businesses with 300 or fewer employees operating in low-income communities. The business must have experienced revenue reductions of more than 30%
  2. Supplemental Targeted Advance—A grant of up to $15,000 is offered to small businesses that operate in low-income communities, have suffered a revenue reduction of more than 50%, and have ten or fewer employees

Small Business Debt Relief Program

The CARES Act allows SBA to offer debt relief to small businesses that have received 7(a) loans, microloans, and 504 loans. For these loans approved before September 27, 2020, the SBA will cover principal, interest, and related loan fees for six months. Loans under the Paycheck Protection Program and EIDL do not qualify for loan forgiveness.

SBA offers debt relief automatically as follows:

  • Regularly serviced loans—The SBA starts making monthly payments up to six months
  • Deferred loans—The SBA will start making monthly payments after the expiration of the deferment period for no more than six months

Let DoNotPay Help You Get the Loan Your Business Needs

DoNotPay is here to make it easier for you to find funding for your business. Even if your startup is not established, a clear and convincing loan request letter can persuade the lender that your business plan is viable.

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  1. Navigate to the Business Loan Request Letter tool
  2. Answer the brief questionnaire
  3. Upload the required documents

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