U.S. Small Business Administration reduces the number of months SBA 7(a) and 504 loans are covered

U.S. Small Business Administration reduces the number of months SBA 7(a) and 504 loans are covered

On January 19, 2021, the U.S. Small Business Administration (SBA) issued a Notice (found here) that set the number of months SBA 7(a) payments would be covered under Section 1112 of the Coronavirus Aid, Relief and Economic Security Act (CARES Act) as amended by Section 325 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act).

Since the date of that Notice, the SBA issued an updated Notice (found here) on February 16, 2021, that states there are not enough funds to make the SBA payments for the periods authorized in the Economic Aid Act issued on January 19.

The revised SBA plan is to proportionally reduce the number of months provided for each category of loans described below, while ensuring that all amounts made available for the Section 1112 payments are fully expended. 

Under the plan, SBA will make the Section 1112 payments as described below (Adjustment Plan). This Adjustment Plan is effective immediately and will be applied to the Section 1112 payments that SBA makes beginning with the payments made in February 2021. 

For a newly eligible 7(a) or a 504 loan that was approved on or before September 27, 2020 and fully disbursed on or after September 28, 2020

  • SBA will make the Section 1112 payments for a 3-month period (instead of a 6-month period). (Note that, for loans that were approved and fully disbursed on or before September 27, 2020, SBA will continue to make the Section 1112 payments for a 6-month period, as authorized under the original CARES Act.)

Second round payments for 7(a) and 504 loans approved before March 27, 2020 

  • SBA will make the Section 1112 payments for a 2-month period (instead of a 3-month period). This 2-month period of Section 1112 payments may cover amounts that are past due at the time that SBA makes the February Section 1112 payment, subject to the monthly payment limit of $9,000.  

    - If the 7(a) or 504 loan is made to a borrower that is assigned a North American Industry Classification System (NAICS) code beginning with 61, 71, 72, 213, 315, 448, 451, 481, 485, 487, 511, 512, 515, 532, or 812, SBA will make the Section 1112 payments for an additional 3-month period (instead of an additional 5- month period) immediately following the end of the 2-month period.

New 7(a) loans or 504 loans approved beginning February 1, 2021 and Ending on September 30, 2021

  • SBA will make the Section 1112 payments for a 3- month period instead of a 6-month period, subject to the availability of funds.

No Second Round 1112 Payments for Loans Approved Between March 27, 2020 and September 27, 2020. 

  • A loan that was approved during the period beginning on March 27, 2020 and ending on September 27, 2020 is eligible for the first round of Section 1112 payments either for a 6-month period if the loan was fully disbursed on or before September 27, 2020 or for a 3-month period if the loan was fully disbursed after September 27, 2020. Under the Adjustment Plan, no other Section 1112 payments will be made for these loans.