Type: Law Bulletins
Date: 04/21/2020

SBA Part Seven: Will the SBA Really Make Payments for Me? Yes, it Will.

In Section 1112 of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), Congress noted that all borrowers are adversely affected by COVID-19 and provided payment relief to SBA 7(a), 504 and micro-loan borrowers by appropriating $17 billion for payment relief. Current borrowers and any borrower that has an SBA 7(a), 504 or micro-loan (7(a) loan) issued prior to Sept. 27, 2020, are entitled to this payment relief.

This section of the CARES Act provides the Small Business Association (SBA) will automatically make six months’ worth of principal, interest and associated fee payments that are owed on behalf of a borrower whose 7(a) loan is in a regular servicing status. These automatic payments commence with the first payment due on a 7(a) loan after March 27, 2020. The SBA will pay this first loan payment to lenders within 30 days of the first loan payment due date after March 27, 2020.1 The borrower does not need to take any action. If a lender receives a loan payment from a borrower after March 27, 2020, the lender must inform the borrower that it has a choice: (a) request that the lender return the loan payment, or (b) apply the payment to the loan to further reduce the loan balance after application of SBA’s payment.

Lenders will need to provide the SBA with the gross monthly loan amount due (including both the guaranteed and non-guaranteed portions of the loan) as soon as possible. The SBA provided additional guidance to lenders with its issuance of SBA Procedural Notice 5000-20017. Lenders should also be aware the CARES Act authorizes the SBA, through March 27, 2021, to waive the statutory limits on maximum loan maturities where the lender provides a deferral and extends the maturity of the loan.

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1If a borrower was granted a payment deferral period, the SBA payments will begin once the payment deferral period is over, unless an alternative arrangement is made. The borrower has the option to decide if it wants to forego the deferral period. One thought for borrowers to consider is that funds may run out under this section of the act and it is, therefore, better to have the payments applied now in the event that occurs.

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