This is an image of a small business owner finding small business capital during tumultuous times.

Finding Small Business Capital in Tumultuous Times

Many small business owners are working to position themselves for success in the face of a bleak economy. As business owners consider their financial wellbeing and evaluate their operational needs moving forward, they will need to assemble their toolkit for survival. Whether a business has been completely shuttered, partially open or even fully operational, most small businesses have seen revenue cuts. In fact, three out of four small business owners have seen sales negatively impacted by COVID-19, as stated in Live Oak Bank’s BusinessPulse. Additionally, they expect sales to be down 30% by the end of 2020.

Financing is likely to be one of the largest hurdles for small businesses. Steve Smits, chief credit officer at Live Oak Bank, weighs in. “When businesses start to come up for air, they will find their balance sheets depleted and their liquidity drained. They’re going to need some dry powder to get back on their feet again.”

Now is the time for owners to determine the minimum viable amount of small business capital required to operate and then research the different financial solutions available. It’s not too late to pursue a loan to support your business through the turbulence. There are viable small business capital options to help boost your ongoing efforts for stability and possibly even growth. However, every single business is unique, and these options are not a “one-size-fits-all.”


SBA Express

The CARES Act, approved by Congress on March 27, included a temporary increase to the SBA Express Loan Program from $350,000 to $1 million. One of the added benefits of the Express program is the ability to structure it as a revolving line of credit, something that many businesses will likely utilize as they ramp back up. Unlike a Paycheck Protection Program loan, an SBA Express loan is not eligible for forgiveness. But an Express loan also doesn’t require the borrower to spend 60% of funds on payroll and other limited expenses, offering more flexibility for use of proceeds. In a recent American Banker article, the Express program is referred to as the “potential PPP successor” as it can offer small businesses flexible funding to make a comeback.  Smits notes that an Express loan may not be suitable for all, depending on the financial health of your business. “Express simply will not work for everybody — a revolving line of credit is not meant to backfill losses.”  Rather, a line of credit can help build a balance sheet back up.



Another component of the CARES Act includes USDA loans for eligible rural businesses. The loan size is $250,000 up to $2 million with a 10-year term and a 90% guarantee. This is another worthwhile option for small businesses to explore, assuming they meet the USDA’s eligibility requirements.


Main Street Lending Program

The Main Street Lending Program, a separate relief program for small- and mid-sized businesses was created by the Federal Reserve in the wake of the COVID-19 crisis. The program was designed to keep credit flowing to businesses who were in good financial standing before the crisis. The nuts and bolts are basic: a four-year term loan with interest and principal payments deferred for the first year, providing a huge benefit to many small businesses reeling from the impacts of COVID-19. There are three different loan facilities and businesses can only participate in one. The Fed will purchase between 85 or 95% of each loan, depending on which facility is used. The Main Street Lending program could prove to be an effective source of small business capital for those eligible.


SBA Loans

Traditional SBA loans are still available to those who qualify and could be an ideal solution for many small businesses. SBA lending is expected to grow, based on historic data we’ve seen coming out of a downturn. Smits says that past trends indicate there will be an uptick in demand for SBA lending because of the credit enhancement. In addition to the government guarantee, the SBA will be paying principal and interest on all new loans originated and fully funded by September 25, 2020 for the first six months.


EIDL Program

Small businesses, agricultural operations and non-profits can apply for an Economic Injury Disaster Loan (EIDL). Proceeds can be used in a variety of ways, including working capital and normal operating expenses, such as continuation to health care benefits, rent, utilities and fixed debt payments. After a brief pause on applications, the SBA resumed accepting new EIDL applications on June 15, 2020. Unlike the PPP loan program, EIDL loans are not eligible for forgiveness. The principal and interest payments are deferred for the first year, however. The maximum loan amount is $150,000 with a maturity of up to 30 years. The interest rate on EIDLs is 3.75% for companies and 2.75% for nonprofits. For the latest information on the EIDL program, visit the SBA’s website here.


Demand for credit is poised to grow

While businesses begin to seek out capital, it will be crucial for them to demonstrate a sound business model, solid leadership and a plan for the future, even amidst its uncertainty. According to recent data from the Live Oak BusinessPulse many small businesses are depleting their cash reserves in order to stay afloat. Nearly 1/3 of small business owners are dipping into their personal savings to finance their businesses.  Smits said that banks can help struggling small businesses recover by providing funds but must do it in a thoughtful and disciplined way.


While the current lending environment is remarkably different than it was pre-pandemic, there are still opportunities to source funding. Banks are tightening up their credit boxes, but small business owners still have options when it comes to securing debt. Small business owners are encouraged to maintain strong relationships with their lenders, who can help assess the situation and suggest a financial solution to suit their needs. Securing financing while also cutting back nonessential costs will prove to be essential for small businesses, as they traverse these uncertain times.


This information is accurate and up to date as of July 21, 2020.