As a small business owner, you know the value of good employees. The last thing you'd want to do is miss payroll! You know your employees depend on your business to feed their families and pay their bills.
So if you're worried about making payroll, it's time to look into financing. An SBA loan might be your best option. An SBA loan for payroll can give you back your peace of mind. There are several low-interest options available, and there are even grants for specific industries.
With an SBA loan or grant, you'll be able to pay your valued employees, ensuring they can stay at their job. Keeping good employees will help your business thrive, so let's look at the many SBA financing options.
Paycheck Protection Program (PPP) Availability For Payroll Financing
The Paycheck Protection Program is a loan program that helps small businesses keep employees on their payroll. Community financial institutions, including microlenders and Certified Development Companies (CDCs) within the Small Business Association (SBA), offer PPP loans. The program was available until May 31st, 2021, or until funds ran out.
Not all community financial institutions are participating in the PPP, and not every business is eligible. You needed to have under 500 employees, and you can only apply to receive two and a half times your monthly payroll expense.
The biggest benefit to the PPP is that you may not have to pay the loan back. If your business can keep its current staff or hire back furloughed staff while cutting total wages by no more than 25%, you're eligible for SBA loan forgiveness. A business that fails to meet those requirements may have to pay the loan back in part or in full.
Alternative SBA Loans Options For Payroll
The Paycheck Protection Program is great for certain businesses, but it doesn't work for everyone and it won’t be around much longer if it’s not already closed by the time you’re reading this article. Luckily, there are other SBA loans available that can help.
SBA 7a Loans
You can use an SBA 7a loan for payroll as it applies to working capital. You'll need to operate a for-profit, small business in the U.S. that has good equity. Plus, you'll also need to state why you need the loan and show that you've pursued any other available financing options first. If you can meet those requirements, it may be worth filling out an SBA loan application.
If you look up SBA 7a loans, you may run across information on SBA 504 loans as well. Using an SBA 504 loan for payroll isn't an option, though. SBA 504 loans exclude all working capital; they're for making improvements to your building or purchasing new equipment, not paying employees.
Besides 7a loans, the SBA also offers grants for specific business sectors. As part of their COVID-19 relief options, you can apply for an SBA grant if you own a restaurant or shuttered venue, such as a theater or museum. You won't have to pay back grant money as long as you use it for payroll, rent, or another approved expense.
Microloans of up to $50,000 are available to small businesses through the SBA as well. Lenders set their own requirements for these loans, but the SBA will guarantee against defaults. That makes it less risky for lenders to loan to small businesses. However, the lender requirements can be a lot.
In some cases, lenders may require training or education before they provide the loan. If you're approved for the loan, however, you can use it for payroll, equipment purchases, and several other common uses.
Taking Advantage of SBA Disaster Loan Options
If an SBA 7a loan, grant, microloan, or PPP loan won't work for your business, there are also SBA disaster loan options. The SBA is currently offering Economic Injury Disaster Loans (EIDLs) as part of Covid-19 relief efforts.
An EIDL loan is for working capital and other regular operating expenses. In other words, you can use it for payroll. It's available up to $500,000 at 3.75% fixed interest.
Loans above $25,000 will require collateral, and the loan is not forgivable. You will have to pay it back. Still, it'll help you pay your staff, which is the point!
All businesses with under 500 employees, including agriculture-based businesses, qualify for EIDLs as long as they're based in the U.S. or a U.S. territory.
SBA Disaster Loans
The SBA also offers disaster loans for non-Covid related incidents. If you had a fire, flood, or another disaster to your business, you could apply for a regular SBA disaster loan.
Disaster loans can cover any business expense that you could have easily met were it not for the disaster, including payroll. Disaster loans can also cover mitigation assistance. And you can use them to support your business if you have reserve military employees called for active duty.
If you're interested in a disaster loan, we suggest reading our SBA disaster loan tips. There, you can learn what you'll need to apply and what you can expect in funding.
Average Interest Rates for SBA Loans
Loans from traditional banks often have interest rates of near 7%. SBA loans often require far less interest, making them excellent options for struggling small businesses. An EIDL, for example, has a fixed rate of 3.75%. Other SBA disaster loans have a maximum interest rate of 4%.
SBA 7a loans range from 5.5% interest to 9.5% interest depending on the lender, your qualifications, and the strength of your business. In contrast, PPP loans have an interest rate of 0% if you qualify for forgiveness. Without loan forgiveness, PPP loans have a 1% interest rate.
Determining the right SBA loan for your payroll needs can be tricky, which is why ROK Financial offers a dedicated Business Financing Advisor, free to all our customers.
They'll put you in touch with the best financing options so you can stop stressing about paying employees. Best of all, ROK Financial offers express funding, which can secure your SBA funds in as little as 45 days! Filling out the 15-second online application is all it takes.
About the Author, Madison Taylor
Madison Taylor is the Brand Ambassador at ROK Financial. She is responsible for raising brand awareness and business relationships with business owners across the country. Madison loves that she plays a small role in getting Business Back To Business Through Simple Business Financing and looks forward to hearing what you think about the blogs she creates! Madison has been working in the financial space for six years, and loves it! When she is not at work, you will find her at home learning a new recipe to test out on her family or going on new adventures with her friends.