Alternative PPP Loans: What are Your Options Now?

Federal Forgivable Paycheck Protection Program loans have provided a lifeline for millions of small business ailing from the coronavirus pandemic, but now some lenders have stopped accepting PPP applications.

Lenders are taking a cautious approach right now, says Gerri Detweiler, education director for Nav, a business credit and financing resource. “They’re careful not to make loans to businesses that won’t pay them back,” she says.

If you are struggling to find a PPP lender as the Aug. 8 application deadline looms, you’re not out of luck. Alternative lenders, regional and local banks, and credit unions, may still accept PPP loan applications.

Whether you need money now or could use it later, these alternatives to PPP loans could help.

Can You Get a PPP Loan?

Finding a lender could prove a challenge if you’re only looking at big banks, some of which have stopped taking PPP loan applications. You could have better luck with regional and local banks or credit unions but may need a banking relationship to apply.

The SBA also maintains a list of participating PPP lenders by state. You will need to verify loan availability and that you meet eligibility requirements.

Qualified businesses and nonprofits can access SBA-guaranteed PPP loans of up to $10 million but must work with SBA-approved lenders. The loans are forgivable if the funds are used for payroll, mortgage interest, and rent and utility costs, with at least 60% going toward payroll.

A PPP loan has a 1% interest rate and doesn’t require collateral, but each business is limited to one loan.

Alternative PPP Lenders

Unlike banks big and small and credit unions, alternative lenders may be more willing to accept your PPP application, even if you don’t have a business relationship. Alternative lending describes funding that isn’t associated with traditional financial institutions.

For PPP loans, these alternative lenders may be able to help:

What Can You Do If You Run Out of PPP Money?

PPP loans have helped, but many business owners have said they may not be enough to weather the crisis, Detweiler says.

“They don’t know how their business will fare, but they know they will probably need more money to tide them through the crisis,” she says. “It’s still ongoing, and we don’t know when things will really start to turn around.”

In fact, almost half the businesses polled by the NFIB Research Center indicated that they will likely need more financial support in the next 12 months, despite applying for government-backed loans to help with the health crisis.

When PPP funds are not enough, options include:

Other Government-Backed Loans

Not only PPP loans but also many other government-backed programs can help you make ends meet during the pandemic:

Economic Injury Disaster Loans 

These loans are attractive because of low interest rates – 3.75% for most businesses and 2.75% for nonprofits – payment terms of up to 30 years, and no prepayment penalties.

While the terms of the EIDL are good, “It’s not as appealing as a loan that can be fully forgiven,” such as the PPP, Detweiler says.

Main Street Lending Program 

The Federal Reserve opened this program in June for lenders to provide loans to small and midsize businesses that were in good financial shape before the coronavirus pandemic. The loans can be paid back over five years, with deferral of interest payments for a year and principal payments for two years.

These loans are intended for larger small businesses, not for ones making $2 million or more per year, says Brooke Lively, president and founder of Cathedral Capital, which serves as a chief financial officer for small businesses.

SBA 7(a), 504 and microloans 

These three SBA loan programs qualify for the SBA Debt Relief program. The SBA will pay six months of principal, interest and fees, as long as you are current on your loan.

This also applies to new loans disbursed before Sept. 27.

Traditional Small-Business Loans

A traditional small-business loan is still an option, even though getting one now is tougher than before the pandemic. Lending standards are stricter as banks try to limit risk during the coronavirus downturn.

“More than ever, you have to demonstrate your business is a good financial risk to get financing right now,” Detweiler says.

Lenders will look at your revenue, your industry – How healthy is it? – and your business and personal credit records. Before you apply for a loan, work with your bookkeeper and your accountant to organize and update your finances and to make sure your credit is in good shape, Detweiler says.

You might benefit from working with a small bank because, adds Lively, “You can talk to a loan officer, who will go to the loan committee and fight on your behalf to get you a line of credit.”

Lines of credit are a good idea even if you don’t need immediate liquidity because “it’s free insurance,” she says. “Whether you need it or not, go ahead and get it.”

Online Lending Options

Businesses that can’t get financing from traditional lenders will often look to online lenders and credit card companies. Traditional lenders will be less expensive, Detweiler says, but right now, you may need to “cast a wider net and look at other options.”

Online lenders may offer term loans, lines of credit, invoice-based financing and other funding opportunities. Whatever you choose, make sure you are aware of the fees and potentially high interest rates.

Other Lending Options for Small Businesses

Certain types of loans are suited to small businesses. Some of these choices include:

Microloans. These are small loans issued by individuals rather than banks or credit unions. These are often overlooked, but they can be found locally or regionally through SBA-designated intermediary lenders, Detweiler says.

Crowdfunding. This funding option combines investments from multiple sources, which are usually small. It has been “very successful for some small businesses, more so than in the past,” Detweiler adds.

There are also equity crowdfunding options; see the North American Securities Administrators Association for more details.

Business credit cards

Using business credit cards for business expenses is an option for those who have the cards or who have a strong credit rating and can get them easily.

Getting credit is tougher now, though, if your score is shaky. The companies “are not marketing anywhere near as aggressively as they had in the beginning of the year,” Detweiler says.

Unsecured loans. If your personal credit history is strong, you could explore either an unsecured business loan or a personal loan for business funding.

Government programs. Many state and local governments have set up programs to assist businesses in need during the coronavirus crisis.

As you keep up with changes to relief programs, continue to look out for new aid that could help your business.

“Additional assistance to small business could have a positive effect not just in the immediate term but longer term because that, in turn, means those businesses don’t fail, and lenders will be more comfortable getting back into lending with businesses that are less likely to fail,” Detweiler says.