SBA Helps 4 Million Small Businesses With Disaster Loans, Marks $390 Billion In Affordable Covid Aid

It seems that small business owners who took out disaster loans from the Small Business Administration cut quite a deal as the Federal Reserve took historic measures to tame spiraling inflation.

The SBA announced Thursday that its Covid Economic Injury Disaster Loan Program, which offered low-interest rate loans, took out nearly $390 billion to 4 million small businesses and nonprofits. The COVID EIDL program officially kicked off in early May.

The interest rates for EIDL loans fall between 2.75 to 3.75 percent. Such loan terms will steal even more as the Fed continues to raise interest rates, which it is projected to do for the rest of the year as the regulator aims to contain inflation to two percent. Inflation recently exceeded eight percent, a new 40-year high in June.

On Wednesday, the Fed raised its interbank lending rate by 75 basis points, the biggest rate hike it has seen since the mid-90s. But the big disadvantage here is that raising interest rates is expected to raise the cost of borrowing, which will make it more expensive for businesses to take out traditional loans. handful of banks has already begun to increase its prime lending rate – or the rates that banks charge those deemed most creditworthy.

The good news is that many small businesses have received low-interest loans, in part thanks to the EIDL program. Small businesses of up to 10 individuals received about 90 percent of these loans, SBA Administrator Isabella Guzman said in a release. Guzman adds that the SBA revised its disaster loan program to “expand the distribution of low-interest, flexible loans to meet the continuing needs of small businesses for financial relief so they can recover.”

Lynn Ozer, president of Ambler, a Pennsylvania-based financial services company Multifunding, says businesses can’t use disaster assistance to meet working capital objectives in the future, because companies need to take into account specific funding uses documented at the time of application. have to keep. , But businesses can certainly apply their company’s future earnings toward growth far more easily than companies that didn’t take out EIDL loans during the first two years of the pandemic.

β€œAt the same time, we increased anti-fraud measures to protect taxpayer dollars and ensure that the money benefits those who want to help Congress,” she said.

But the disaster loan program was not safe from fraud and the SBA has faced criticism for how it deployed loans early in the pandemic. Members of Congress have criticized the agency for requiring too little oversight, allowing bad actors to receive billions in aid within these programs.

Still, fraudsters may face additional legal hurdles. A House subcommittee recently passed a bill that would extend the term of charges and other enforcement action against fraudulent EIDL and Paycheck Protection Program borrowers. If the bill becomes law, the statute of limitations will climb to 10 years — meaning a borrower who took out a fraudulent EIDL at the beginning of the year could face legal action as early as 2032, at the latest.

Unused money can always be returned to the government. But with the Fed expected to continue raising rates, a business may weigh in if it is in their best interest to return unused money amid economic uncertainty. Given that businesses have outlined how they will use EIDL funds in their applications, it is unlikely that they may be holding the additional funds just for safekeeping.