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Clarification on Existing SBA 7(a) and 504 Loans

Many business owners with existing SBA 7(a) and 504 loans are receiving relief through the CARES Act, with the SBA making up to six months of principal and interest payments. And while those payments have already begun, we have received a new update on this key part of the relief package:

For covered loans originating after March 27, 2020 and before September 27, 2020, the SBA will make loan payments beginning with the first payment due date.

The SBA is clarifying this portion of the CARES Act by telling us that they require the loans to be not only approved by September 27, 2020 — but also closed and funded. That makes the 9/27 deadline much tighter to advance a loan from the application stage to closing and funding. Acquisition projects may still be able to meet the deadline, but it is unlikely for construction and other new projects.

The original procedural notice issued by the SBA can be found here, with additional highlights including:

  • —“SBA will pay the principal, interest, and any ‘associated fees’ that Borrowers owe on a ‘covered loan’ in a ‘regular servicing status’ to 7(a) Lenders and Certified Development Companies (CDCs) for a 6-month period.”
  • —For covered loans made before March 27, 2020 and not on deferment, the SBA will make six consecutive monthly payments starting with the next payment period.
  • —For covered loans not on monthly payment schedules, the SBA will annualize payments, total the annual loan payments, divide that number by 12 and multiply by 6 to determine the amount of the SBA subsidy, and will pay to the lender depending on the payment schedule in place.
  • —For covered loans made before March 27, 2020 but already on deferment, the borrower can cancel the deferment and receive payments on the next six payment dates, or accept payments on the next payment due –after the deferment ends.
  • —If the borrower has less than six payments remaining, he/she will be limited to the outstanding balance.

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