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SBA Helping Borrowers During Unprecedented Times

March 18, 2020

The SBA has approved payment deferrals for both the 7a and 504 Loan Programs.  SBA has also approved a process for Economic Injury Disaster Loans. 

Below are the general terms of how borrowers can apply for deferrals and/or the Economic Injury Disaster Loans.  Some details are still being worked out, but the framework is set out below.

7a Loans
Lenders may assist their borrowers who are experiencing cash flow issues by deferring loan payments for a period of between ninety (90) days and up to six (6) months.  If the Lender has not sold the borrowers loan on the secondary market, the lender may grant a deferral of up to six (6) months.  However, if the Lender has sold the loan on the secondary market, the lender may grant a one-time unilateral deferral of up to ninety (90) days without the consent of the secondary market investor.  Any additional deferrals for loans sold on the secondary market will require the consent of the investor that purchased the loan.

504 Loans
Under the 504 Loan Program, the Certified Development Companies (“CDC’s) will help borrowers with 504 loan deferrals.  Borrowers are encouraged to contact their CDC to request a deferral if needed.  The deferral under the 504 Program is not to exceed the lesser of six (6) cumulative monthly payments, or, 20% of the original loan amount.  As a part of the deferral, a “Catch Up Plan” must be agreed to in order to repay the deferred loan, together with fees, interest, and related expenses. Catch Up Plans are to be completed by the earlier of ten (10) years or the maturity of the loan.  Borrowers will work with their CDC’s on establishing a compliant Catch-Up Plan.

Economic Injury Disaster Loans
The SBA is working with the Governor’s of the individual states to establish the state’s need for this program.  Upon application by the state to the SBA  for inclusion in this program, the SBA will issue an Economic Injury Disaster Loan declaration for areas within that state.  

Upon issuance of the declaration, the SBA will coordinate with the state how small businesses may apply for these loans. Information on the application process and the areas eligible for the Economic Injury Disaster Loans will be placed, among other locations, at SBA.gov/disaster. 

Loans can be up to $2,000,000.00 per small business and can be used for expenses including:

  • fixed debts
  • payroll
  • accounts payable
  • other bills and expenses that remain unpaid as a result of the impact of the disaster

If the small business qualifies for a loan, and cannot obtain credit anywhere else, the interest rate will be 3.75%.  Non-profits will be eligible with rates at 2.75%.  Small businesses that do have access to other forms of credit will NOT be eligible.  

Repayment periods may be as long as thirty (30) years but will be determined on a case by case basis and guided by the borrower’s ability to repay the loan without incurring further economic distress.

SBA is stepping into the middle of these uncharted waters to provide assistance to small businesses.  Let your borrowers know that help is available for them.  Help them be proactive in these times and not wait until they are forced to have to react.

About the Author

Thomas M. Woebkenberg

Thomas M. Woebkenberg

Tom Woebkenberg practices in the firm’s Real Estate Practice Area

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