Alejandro Contreras of the Small Business Administration, joins Yahoo Finance’s Alexis Christoforous and Brian Sozzi to discuss how small businesses are faring amid the coronavirus outbreak
ALEXIS CHRISTOFOROUS: We want to talk about small businesses now, which are really going to be taking the brunt of this recession. Many saying that we're probably already in a recession. What kind of help is the small-business community going to be able to get from the government and elsewhere from the banks?
And joining us now is Alejandro Contreras. He is Director of Preparedness, Communication, and Coordination at the Small Business Administration. Alejandro, thanks so much for being with us.
My first question has to do with speed. At the moment, how prepared is your organization to get these funds to small businesses?
ALEJANDRO CONTRERAS: Well, good morning, and thank you for having me. So the Small Business Administration has been doing disaster loans since 1953. One of the programs that we provide is the Economic Injury Disaster Loan program. And so this is something that we're very familiar with. You know, we've had a lot of experience with large-scale disasters over the past years, but this is something that we haven't really seen before. This is a very widespread-- you know, it's affecting small businesses across the whole country. So it's going to take a extremely large effort to roll the program out and provide the assistance that small businesses need.
BRIAN SOZZI: Alejandro, Brian here. Good to speak with you this morning. How much red tape is there to getting these loans to small businesses? I think a lot of small businesses right now are concerned [INAUDIBLE] timing, when they will get this cash that they need really, really desperately.
ALEJANDRO CONTRERAS: Right. So this is something that we've been looking at, ways that we can-- things that we can do quickly right now within our own authority to make it easier to access to loans.
Earlier this week, our administrator Jovita Carranza did just that. She relaxed the requirements on state governors to provide documentation on small businesses that have sustained economic injury in order to qualify for a statewide declaration. Instead of having to find one in every single county, now they just have to find-- just provide evidence of five small businesses in the state and we can declare the entire state and provide the low-interest disaster loans to small businesses in every county. We're now up to, as of this morning, 30 counties have been declared for the coronavirus.
And now as far as providing the assistance to individual businesses that are applying with us, we're doing the same thing. We're looking for ways that we can reduce the amount of documentation that they're normally required to provide to us in order for us to evaluate credit and repayment ability. So that way we can speed up the decision and get the money out to the businesses as quickly as possible because we understand, you know, having all the experience we do and working in disaster assistance that getting the money out to these small businesses as quickly as possible could mean the difference between them surviving and failing.
ALEXIS CHRISTOFOROUS: Exactly, Alejandro. You bring up a great point. I mean, for some businesses, just lasting 30 days without anything coming in could mean the difference between surviving and not.
I understand that you're still processing loans from hurricanes one or two years ago. Can you offer us any kind of a timeline? Just how quickly could the money get into the hands of the businesses that need them to stay afloat?
ALEJANDRO CONTRERAS: Right. So on average, it takes between two and three weeks to process a decision on an application. And then once we get loan-closing documents to us, we're making a disbursement within just a few days.
However, that's an average. You know, if the application is really straightforward-- you know, this is like a noncomplex business structure. We have a lot of sole proprietors, small business, self-employed people who are applying. Those applications will be a lot-- a lot easier and faster to process. We've already started approving loans starting a couple of days ago. So the money's already starting to be approved and start to roll out to the states as quickly as possible.
BRIAN SOZZI: And what do you think the longer-term damage from the coronavirus pandemic will be to the small-business community? You know, I know a lot of small businesses that they just might go under and may not be able to restart their businesses later this year or at all.
ALEJANDRO CONTRERAS: Right. So this is, you know, what's causing a lot of concern and angst in the small-business community is the uncertainty. You know, with the normal types of disasters that we respond to-- hurricanes, floods, tornadoes, earthquakes-- I mean, you can start to see the recovery happen because it has a lot to do with repairing buildings and, you know, bringing infrastructure back up. But this is more business interruption, and we just really don't know.
But I can say a few things about what the SBA is doing. So for the disaster loan, we provide up to $2 million for working capital. We've also gone ahead and approved doing a one-year deferment on the payments. So if we approve the loan, that small business does not have to start making payments for a full year after the date of the note, and that gives them time, hopefully, to get back to some normalcy and normal business operations before they have to start making payments.
Also, it gives them time to see if there are any other programs that become available because we know SBA's Economic Injury Disaster Loan program, while it's a really great program, provides really valuable assistance, it's not going to be the one size fits all solution for businesses. They're probably going to be accessing assistance from different places. And so maybe some other programs can come in and help, you know, before the payments start to become due.
ALEXIS CHRISTOFOROUS: Alejandro, are you looking at giving grants versus loans? Can you-- can you give us a little more explanation on that? And also, are these-- if they are loans, are these loans that are being given to small businesses with zero interest?
ALEJANDRO CONTRERAS: So they're not zero interest. Interest rates are very favorable. For small businesses, the interest rates are 3.75%, and for nonprofits, the interest rate is 2.75%. The term can go out as far as 30 years, which helps keep the payments lower. And as I mentioned, we're going to do a one-year deferment automatically on all the payments.
Now this is a disaster loan program. We don't have the authority within our program to convert these to zero interest or to forgive them, effectively making them grants. So hopefully, you know, what we always hope to see for small businesses is that there will be a variety of other assistance programs available even if they're from other programs, other agencies, other sources-- federal, state, local level even, maybe even from the private sector or the nonprofit sector that will come in to assist.
ALEXIS CHRISTOFOROUS: Yeah, I'd have to imagine absolutely everything is on the table. Alejandro Contreras of the Small Business Administration, thanks for being with us.
