Over the past two weeks, HARDI staff has received numerous questions from members regarding how they should plan for a financially uncertain future, given the recent timelines around the expected duration of the COVID-19 outbreak. Unfortunately, private credit markets have tightened and small businesses are struggling to access the affordable credit necessary to carry them through this difficult time. Federal agencies have historically offered numerous low-interest loan programs to support small businesses, and many of those loan programs are now being supplemented by additional federal dollars thanks to White House and congressional action. Although the turnaround on applications for state and federal financing can be lengthy – SBA loan approval timelines generally range from 1 – 6 months, and that’s when they’re not in high demand – these are tools that HVACR suppliers and distributors should consider if they’re struggling to find support from private lenders.
U.S. Small Business Administration
Economic Injury Disaster Loans (EIDL) – These loans are available to small businesses – suppliers with less than 500 employees, and distributors with less than 200 employees – that have been met by “economic injury.” For a business to be eligible for an EIDL, it must be located within a county that has been approved by the SBA for an Economic Loss Declaration – which is submitted by the state governor. The SBA will provide financial assistance only to businesses that are unable to secure a private loan. To determine whether your business falls within a qualifying county, visit the SBA Disaster Loan Assistance page.
Amount available: Businesses can receive up to $2 million, which can be used to pay fixed debts, payroll, accounts payable, and other bills that can’t be paid as a result of the COVID-19 outbreak.
Terms: Interest rates are set at 3.75 percent for small businesses, with a repayment timeline of up to 30 years.
Where to apply: If your business falls within a designated county, you can apply for EIDL online.
7(a) Loans – The SBA 7(a) Loan Program is available to qualifying small businesses, and it does not have the same stings attached as the EIDL program. To be eligible for the program, businesses must operate for profit; be engaged in, or propose to do business in the U.S. or its territories; have reasonable owner equity to invest; and have used alternative financial resources, including personal assets before seeking assistance. There are six different types of 7(a) loans available – including the 7(a) Express Loan which promises loan decisions within 36 hours – and we encourage you to visit the 7(a) webpage for complete information.
Amount available: Most 7(a) loans have a maximum loan amount of $5 million, but SBA 7(a) Express Loans have a maximum loan amount of $350,000.
Terms: Interest rates are negotiated between the borrower and the lender but are subject to SBA maximums (generally pegged to the prime rate, the LIBOR rate, or another optional peg rate). Repayment timelines vary based on how the 7(a) loans are used, with maximum maturities of 25 years for real estate; 10 years for equipment; and 10 years for working capital or inventory loans.
Where to apply: 7(a) loans are made through banks, credit unions, and other specialized lenders. Fundera, a company built to help small businesses with their financial planning, lists what it considers to be the top-10 7(a) lenders on its website.
Microloans – The SBA Microloan program provides loans of up to $50,000 for small businesses to use for working capital; inventory or supplies; furniture or fixtures; and machinery or equipment. Loans are made through intermediary lenders – typically non-profit community-based organizations – which may have their own lending and credit requirements.
Amount available: Microloans of up to $50,000 can be made through an eligible intermediary, although the average loan is for about $13,000.
Terms: Although interest rates vary based on the intermediary lender, they generally fall between 8 and 13 percent. The maximum repayment term for an SBA Microloan is 6 years.
Where to apply: To apply for a microloan, you must work through an SBA approved intermediary. Participating intermediaries can be found on this list, and for additional questions you should contact your local SBA District Office.
Export-Import Bank of the United States (EXIM)
EXIM Working Capital Loan Guarantee – The EXIM Working Capital Loan Guarantee is designed to support businesses in need of capital for buying materials, equipment, supplies, labor, and other inputs necessary to fulfill export orders. To be eligible for the guarantee, exporters must be located in the U.S., have a positive net-worth, an operating history of at least 3 years, have at least one person working in the firm full-time, and have a Dun & Bradstreet number.
- A related program worth investigating is the Supply Chain Finance Guarantee, which allows U.S. suppliers to sell their accounts receivable to a private sector lender at a discounted rate to obtain early payment of their invoices.
Amount available: EXIM provides a 90 percent loan-backing guarantee to the lender, which also covers both multiple export sales and individual contracts as well as revolving and transaction-specific facilities. There is no minimum or maximum transaction amount needed for a business to be eligible for this guarantee.
Terms: EXIM offers long-term and medium-term repayment options for their Working Capital Loan Guarantee, with the length of the term depending on the type of product being exported. EXIM’s medium-term repayment periods can extend up to 7 years for guarantees of $10 million or less, and the long-term repayment periods can extend to 18 years – but are typically 10 years – for guarantees that are over $10 million. For additional information, visit the EXIM website.
Where to apply: EXIM encourages the usage of specialist lenders who have experience working with the Bank. For a list of EXIM-recommended lenders, use the locator tool found here.
EXIM Export Credit Insurance – The Export Credit Insurance program is designed to insure small businesses against nonpayment by international buyers; extend credit terms to foreign customers; cover both commercial and political risks; and arrange financing through a lender by using insured receivables as additional collateral. The Export Credit Insurance program includes several different policy options, including Express Insurance, Single-Buyer Insurance, and Multi-Buyer Insurance, all of which generally cover both commercial and political losses at 95 percent. There are no application fees and no minimum premium, but a one-time, refundable advance deposit of $500 is required to issue the policy. Like the Working Capital Loan Guarantee, to be eligible for Export Credit Insurance exporters must be located in the U.S., have a positive net-worth, an operating history of at least 3 years, have at least one person working in the firm full-time, and have a Dun & Bradstreet number. For additional information on the program, check out the EXIM Online Essentials guide.
Terms: Short term policies insure credit terms of up to 180 days, and in certain cases up to 360 days for capital equipment. Medium-term insurance protects term financing to international buyers of capital equipment or related services for amounts up to $10 million. Medium-term policies also cover credit sales in which payment terms range from 1 to 5 years.
Where to apply: EXIM encourages the usage of specialist insurance brokers who have experience working with the Bank. For a list of EXIM-recommended brokers, use the locator tool found here.
U.S. Department of Agriculture (USDA)
Rural Development Business & Industry Loan Guarantees – The USDA Rural Development office offers a variety of loans, loan guarantees, and grants to support the rural economy. Of interest to HVACR suppliers and distributors is the Business & Industry Loan Guarantee program, which offers loan guarantees to rural businesses applying for loans through federal or state-chartered banks; savings and loans; farm credit banks; and credit unions. A rural business is defined as a business operating in an area of a state other than a city or town that has a population of fewer than 50,000 inhabitants, and any urbanized areas contiguous and adjacent to such a city or town. The borrower’s headquarters may be based within a larger city if the financing is being used within an eligible rural area. Loan guarantees are available for loans that finance working capital, inventory, supplies, and numerous other uses.
Amount available: Loans of up to $5 million are eligible for an 80 percent loan guarantee; loans between $5 and $10 million are eligible for a 70 percent guarantee, and loans exceeding $10 million (but up to $25 million) are eligible for a 60 percent guarantee.
Terms: Interest rates are negotiated between the lender and borrower and may be fixed or variable. The maximum term on real estate is 30 years; 15 years for machinery and equipment, and 7 years for working capital.
Where to apply: USDA B&I loan guarantee applications originate with a third-party lender, and a list of approved USDA lenders can be found here. For additional questions related to the B&I program, contact your state USDA RD office. Contact information for each state office can be found here.
For more resources, visit our COVID-19 Resources Page.