Some of our Loudoun SBDC clients have asked if they can use CARES Act funding to purchase or grow their business. When we look at the Paycheck Protection Plan program the answer is “no”. That money can only be used for a limited number of expenses for existing business activities (more information here).

However, there are provisions in the 2020 CARES Act to assist you if you are looking to purchase a business or secure a traditional SBA loan for your business. In fact, the provision provides for payment of the first six (6) months of loan payments for any SBA 7(a) loan closed by September 27, 2020. If you are able to get a loan application approved and closed by the deadline, the SBA will pick up the first half a year of payments on your loan as part of the CARES Act. This is not deferring loan payments for that period, it means the SBA will actually cover the first six payments on your loan.

The SBA 7(a) loan program is administered through lenders (usually banks) who participate in the SBA loan guarantee program. You can get a list of those participating lenders by using the SBA Lender Match Site. The application is initiated with the private lender and they will manage the process and ultimate approval of the loan. Once the bank has done their due diligence they will submit it to the SBA for approval under the 7(a) program. if the loan is approved it will be eligible for the loan payment program as long as the loan is closed by the September 27 deadline.

The 7(a) loan program is one of the most common loan guarantees offered by the SBA. it provides a loan guarantee for a large portion of a loan up to $5 million and can include operational expenses, purchases of equipment, and in some cases property. How much and what percentage you specifically qualify for will depend on many factors including your ability to pay, credit history, access to collateral and profitability of the business (documented in a well-written business plan). The SBDC is here to assist with the business plan writing process as well as to help answer questions in preparation for any SBA loan, including using a 7(a) loan for the purchase of an existing business.

There are some considerations to think about, beyond the basic loan qualifications, however. The first is that it takes time to process an application, get approval and close on the loan. If you wish to consider a 7(a) loan to purchase a business we recommend you act now as the deadline for closing the loan by September means you need to get loan paperwork in as quickly as possible.

You can get more information at this page from a WEBINAR by BIZBUYSELL, or watch the replay of the webinar below. Feel free to contact us at the Loudoun SBDC with questions or to discuss your specific business plan, whether it’s to buy a business or start a new one.

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