How Can an SBA Loan Help Your Company Survive the COVID-19 Pandemic?

Federal, state, and local governments have encouraged or forced any nonessential businesses to shut down for the sake of “social distancing” practices. This has put a significant dent in the revenues of businesses throughout the country, with many not having the funds to support their current operations for more than a couple more months. However, due to this impact, the $2 trillion stimulus package passed by congress included $350 billion in aid geared toward small business working capital loans to help businesses survive during the COVID-19 pandemic. The first question that needs to be answered is, what is a working capital loan? Second, how can it help your small business survive in the current economic climate?

What is a working capital loan?

First, we need to define working capital, which is the difference between a company’s current assets, mainly cash and accounts receivable, and its current liabilities, mainly accounts payable, and it is a measurement of a company’s liquidity, operational efficiency, and its short-term financial health. A company’s working capital funds can be used to cover its short-term cost, such as payroll, fixed debts, and accounts payable, which if your business has been shut down or seriously impacted from COVID-19, may be struggling to do at this time.

This is where a working capital loan comes in to help alleviate some of the financial pressure and help businesses keep up with short-term expenses during a time in which little or no revenues are being generated. A working capital loan accomplishes exactly what it sounds like it will, it is an influx of funds to help cover the expenses that a company’s working capital balance typically does. However, these loans are typically not easy to acquire, and often require collateral or a significant personal guarantee by the business owner, but as a result of the stimulus package, more favorable terms are being provided through the Small Business Association (SBA).

How can a working capital loan help a business through the COVID-19 pandemic?

As the government has enforced or encouraged businesses to shut down during the COVID-19 outbreak, companies have been experiencing significant declines in revenues and may be struggling to cover their current expenses. The stimulus package including $350 billion in relief for small businesses by means of SBA loans can help your company stay afloat. The SBA’s Economic Injury Disaster Loans are offering up to $2 million in assistance to help small businesses cover their payroll, fixed debts, accounts payable, and any other bills unable to be paid due to the negative impacts from COVID-19. The interest rate on these loans will be set at only 3.75%, with length and terms being determined on a case-by-case basis.

How to receive part of this financial aid?

One important distinction is that the SBA is not actually a lender. The loan is extended by a bank and the SBA in turn guarantees a portion of the loan, which means you will need to find an approved SBA lender first. After that, any loan that exceeds $250,000 in goodwill requires an independent third-party appraiser, which is where Quantive can help you in the process. The steps to take are:

1. Determine if a working capital loan is something that could help your business
2. Confirm your business qualifies to receive part of the $350 billion in relief for small businesses
3. Find a qualified SBA lender
4. Reach out to Quantive to perform the third-party appraisal
5. Get the funds to help your business survive the COVID-19 pandemic!



Dan is the Founder of Quantive and Value Scout. He has two decades of experience in leading M&A transactions. Additionally oversees Quantive's valuation practice and has performed thousands of business valuations.



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