On March 25, 2020, the SBA expanded its Express Bridge Loan disaster relief funds program nationwide to provide small businesses with coronavirus relief. The Small Business Administration’s Express Bridge Loan Program is a quick way for small businesses affected by COVID-19 to get up to $25,000 to cover operational expenses. Eligible businesses must be based in the United States and must be able to prove harm from the coronavirus disease (COVID-19). Here is everything that you should know about it.
The Express Bridge Loan Pilot Program (EBL) provides expedited bridge loan financing for businesses that have been affected by COVID-19. The loans are backed by the Small Business Administration (SBA), and the program is a supplement to the SBA’s existing disaster loan program. Small businesses can borrow up to $25,000 for disaster-related purposes through March 13, 2021. Because it’s an express loan, the SBA has stated that you’ll receive the funds within 45 days of approval, and no later than 90 days.
The loan must be used for working capital and can only be used to cover operational expenses to support the survival or the reopening of your small business. Any U.S.-based small business that can prove to be adversely affected by COVID-19 is eligible for an Express Bridge Loan. A small business is defined as having a maximum of $750,000 to $35.5 million in revenue or a maximum of 100 to 1,500 employees. That being said, the business ‘size’ limit in terms of revenue and employees is slightly different for each industry.
EBL loans are available from SBA Express Lenders. To be eligible, small businesses must have had an existing banking relationship on or before the date of the disaster, March 13, 2020. The loan terms state that an existing banking relationship can be proven with a copy of a current bank statement or other bank document that references the applicant’s business address.
The maximum allowable interest is 6.5% over the prime rate (currently 4.25%), and interest rates can be fixed or variable. The fees include:
- Upfront guarantee fees: This shouldn’t exceed 2% of the guaranteed portion of a loan if the total amount is maximum of $500.
- Annual service fee: An annual service fee of no more than 0.55% of the outstanding balance from each loan’s guaranteed portion will be charged.
- Application fee: the greater of 2% of the loan amount or $250.
- Late payment fee: not to exceed 5% of the scheduled payment.
There is no collateral required.
How Will My Business Be Evaluated for Approval?
Your business will be evaluated by your credit scores, tax transcript, and existing banking relationship to qualify for the bridge loan.
- SBSS Score: Your Small Business Scoring Service Score will be calculated during the loan application. A combination of consumer credit bureau data, business bureau data, borrower financials, and application data will be used to generate a score. The minimum score is 130, but that may change over time.
- Personal Credit Score: This will be required for each guarantor in the business.
- IRS tax transcript or equivalent: The Lender must submit a signed IRS Form 4506-T to the IRS and obtain an IRS tax transcript. A tax transcript summarizes your tax return info and includes your adjusted gross income.
- Existing banking relationship: Acceptable documentation may include a copy of a current bank statement or other official bank documents that reference the EBL applicant’s business address.
Some Red Flags for the SBA
The SBA can’t guarantee a loan for a small business with an ‘associate’ who doesn’t meet their ‘good character’ requirement. That means if you, or your business partner is incarcerated, on probation or parole, or is currently under criminal investigation, you might not be able to secure an express bridge loan. The same applies if you currently have outstanding federal debt or prior loss (unless waived by the SBA for good cause).
What Lenders Are Authorized to Make an EBL Loan?
EBL loans can only be made by SBA Express Lenders that had a valid SBA Form 2424, “Supplemental Loan Guaranty Agreement SBA Express Program,” in effect as of the date of the applicable disaster. (For the COVID-19 Emergency Declaration, the date of the applicable disaster is March 13, 2020.)
SBA Express Lenders may only make EBL loans to eligible small businesses with which the Lender had an existing banking relationship on or before the date of the applicable disaster.
- A relationship with any SBA Express Lender’s affiliates will not satisfy the requirement of an existing banking relationship.
- Lenders are cautioned that the provisions of 13 CFR § 120.140 (“What ethical requirements apply to participants?”) continue to apply to the EBL Pilot Program.
What Small Businesses Are Eligible for the EBL Pilot Program?
EBL loans may only be made to the following:
- For Presidential Disaster Declarations, small businesses located, as of the date of the applicable disaster, in Primary Counties that were declared disaster areas under the Presidential Disaster Declaration or in any Contiguous Counties.
- For the COVID-19 Emergency Declaration, small businesses located in any state, territory, and the District of Columbia adversely impacted by the COVID-19 emergency.
The small business must have been operational when the declared disaster commenced and must meet all other 7(a) loan eligibility requirements.
What Are the Key EBL Pilot Program Requirements?
The EBL Pilot Program applies the SBA Loan Program Requirements in place for the SBA Express Program. As such, the SBA Express Lenders that make the EBL loans must follow their established and proven internal policies and procedures used for their similarly-sized non-SBA guaranteed commercial loans. In addition to the specific eligibility requirements for EBL loans, SBA Express Lenders are expected to be fully familiar with SBA’s eligibility requirements for SBA Express loans as stated in SBA Loan Program Requirements and must screen all EBL applicants and loans to ensure they meet those requirements.
What Are the Required Terms and Conditions for EBL Loans?
- Credit Not Available Elsewhere
As with all 7(a) loans, EBL applicants must demonstrate the need for the desired credit (i.e., they must meet the SBA’s “credit elsewhere” requirements). The Lender must certify on the SBA Form 1920, “Lender’s Application for Loan Guaranty,” that the EBL applicant cannot obtain some or all of the requested loan funds on reasonable terms from non-Federal sources, including the Lender, without SBA assistance, and requires the Lender to fully document the basis for that determination in its loan file. Failure of the Lender to adequately address the EBL applicant’s need for the desired credit may result in SBA denying liability on the guaranty.
- Business location (Presidential Disaster Declarations Only)
The Lender must document in the credit memorandum that the EBL applicant had an operating business located, as of the date of the applicable disaster, in a Primary County declared as a disaster area under a Presidential Disaster Declaration or in a Contiguous County. The Lender may use internal documents, obtained through its existing relationship with the applicant, containing the business address to verify the location of the business.
- Adverse Impact (COVID-19 Emergency Declaration Only)
For EBL loans made under the COVID-19 Emergency Declaration, the Lender must document in the credit memorandum that the EBL applicant had an operating business as of March 13, 2020, and that the applicant has demonstrated that it has been adversely impacted by the COVID-19 emergency.
- Eligibility period
For Presidential Disaster Declaration loans, Lenders may only obtain SBA loan numbers for EBL loans in a particular disaster area for 6 months from the date of the applicable Presidential Disaster Declaration. For COVID-19 Emergency Declaration loans, Lenders may obtain SBA loan numbers for EBL loans through March 13, 2021.
- Multiple loans
An EBL applicant (including affiliates) may obtain only one EBL loan per Declaration. An EBL loan will not count towards the maximum limitation on the amount of SBA Express loans that can be outstanding to any borrower (including affiliates). An EBL loan will, however, count towards the maximum limitation on the amount of 7(a) loans that can be outstanding to any borrower (including affiliates).
- Maximum loan amount
The maximum gross loan amount under the EBL Pilot Program is $25,000.
- Maximum guarantee percentage
For an EBL loan, the SBA guaranty percentage is limited to the maximum guaranty percentage for SBA Express loans. The guaranteed amount of an EBL loan will count towards the maximum SBA exposure that may be outstanding for all SBA loans to a borrower and its affiliates at any one time.
- Maximum maturity/loan term
- The EBL loan must be structured as a term loan (revolving lines of credit are not permitted).
- The maximum EBL loan term is 7 years.
- The Lender may require the EBL borrower to pay the EBL loan in part or in full if the borrower is approved for long-term disaster financing (including an SBA Direct Disaster loan) that allows loan proceeds to be used for EBL loan reimbursement; or
- The Lender may permit the loan to amortize over a maximum term of 7 years if the borrower does not obtain long-term disaster financing.
- Use of Proceeds
- For Presidential Disaster Declarations, EBL loan proceeds must be used exclusively to support the survival and/or reopening of the small business within the eligible Primary or Contiguous Counties. For the COVID-19 Emergency Declaration, EBL loan proceeds must be used exclusively to support the survival and/or reopening of the small business.
- For Presidential Disaster Declarations, Lenders must certify in the credit memorandum that the EBL loan proceeds will be used by the borrower to support the survival and/or reopening of the small business within the eligible Primary or Contiguous Counties. For the COVID-19 Emergency Declaration, Lenders must certify in the credit memorandum that the EBL loan proceeds will be used by the borrower to support the survival and/or reopening of the small business. This certification must be included with any guaranty purchase request to SBA.
- For Presidential Disaster Declarations, EBL loan proceeds may be disbursed as working capital, or for specific disaster-related purposes, such as the purchase of generators, repair or replacement of disaster-damaged equipment or inventory, making repairs to the business premises, etc. For the COVID-19 Emergency Declaration, EBL loan proceeds must be disbursed as working capital.
- Maximum Allowable Interest Rate
The EBL Pilot Program follows the SBA Express interest rate policy. An EBL loan may have a fixed or variable interest rate.
- Because an EBL loan is limited to $25,000, a Lender may charge up to 6.5% over the Prime rate, regardless of the loan’s maturity.
- For variable rate loans, a Lender may use the same base rate of interest it uses on its similarly-sized, non-SBA guaranteed commercial loans; however, the interest rate throughout the term of the loan cannot exceed the maximum SBA Express interest rate allowed of Prime + 6.5%.
- A Lender may charge a default interest rate if it does so for its similarly-sized, nonSBA guaranteed commercial loans, as long as the interest rate does not exceed the amount stated above.