Further Guidance on the Implementation of Section 1112 of the CARES Act, Subsidy for Certain Loan Payments, for the 7(a) and 504 Loan Programs
Summary
SBA Procedural Notice 5000-20049, effective September 24, 2020, to 7(a) Lenders and Certified Development Companies, with further guidance on Section 1112 of the CARES Act, Subsidy for Certain Loan Payments, for the 7(a) and 504 Loan Programs. It reminds Lenders that a 7(a) loan must be fully disbursed by September 27, 2020 (a Community Advantage Recovery Loan by October 1, 2020) to receive 6 months of Section 1112 payments, and that 504 loans funded by the September 16, 2020 debenture sale are the last eligible. Because the funds remain available until September 30, 2021, a deferment must end by March 30, 2021 for all six payments to be made. It explains 7th-month reconciliation of underpayments and overpayments through Colson Services and grants an automatic deferment through December 31, 2020 on SBA-serviced 504 debentures whose payments end in late 2020.
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SBA Procedural Notice
TO: All SBA Employees, 7(a) Lenders and CONTROL NO.: 5000-20049
Certified Development Companies
SUBJECT: Further Guidance on the EFFECTIVE: September 24, 2020
Implementation of Section 1112 of the CARES Act,
Subsidy for Certain Loan Payments, for the 7(a) and
504 Loan Programs
The purpose of this Notice is to provide further guidance on the implementation of Section 1112
of the CARES Act, Subsidy for Certain Loan Payments, for the 7(a) and 504 Loan Programs.
This guidance is in addition to the Section 1112 guidance that SBA has provided with respect to
the 7(a) and 504 Loan Programs in:
• SBA Procedural Notice 5000-20020, “Implementation of Section 1112 of the CARES Act,
Subsidy for Certain Loan Payments, for the 7(a) and 504 Loan Programs”, effective April 16,
2020;
• SBA Procedural Notice 5000-20023, “Additional Guidance on the Implementation of Section
1112 of the CARES Act, Subsidy for Certain Loan Payments, for the 7(a) and 504 Loan
Programs”, effective April 29, 2020; and
• SBA Procedural Notice 5000-20041, “Further Guidance on the Implementation of Section
1112 of the CARES Act, Subsidy for Certain Loan Payments, for the 7(a) Loan Program”,
effective July 28, 2020.
As the September 27, 2020 deadline approaches for new loans to be eligible for Section 1112
payments, SBA wishes to provide the following additional guidance and reminders to Lenders
and CDCs:
A. Reminder of Deadlines for New Loans to be Eligible for Section 1112 Payments
1) 7(a) Loans
SBA reminds Lenders that a 7(a) loan must be fully disbursed to the Borrower no
later than September 27, 2020 in order to be eligible for 6-months of loan payments
under Section 1112 (see below for deadlines for Community Advantage Recovery
Loans). SBA notes that September 27th falls on a Sunday and Lenders are advised
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that, if they are unable to fully disburse a loan during the weekend, the loan must be
fully disbursed by Friday, September 25, 2020, in order to be eligible for Section
1112 payments. A Community Advantage Recovery Loan that is made under the
Community Advantage Pilot must be approved by September 27, 2020 and fully
disbursed no later than October 1, 2020 in order to be eligible for 6-months of loan
payments under Section 1112.
Lenders may update the loan status on E-Tran after the above deadlines to reflect full
disbursement. SBA reminds Lenders that they must comply with the applicable
lender reporting requirements set forth in the current version of SOP 50 10, including
submitting its monthly report (SBA Form 1502) to Colson Services, SBA’s FTA, by
the third calendar day of each month (or the next business day thereafter if the third
calendar day of the month is not a business day, plus a two business day grace
period).
In addition, in accordance with SOP 50 10 5(K), Subpart B, Chapter 7, Section
IV.A.2, SBA advises Lenders that they cannot disburse the loan proceeds into an
escrow account in order to satisfy the “fully disbursed” requirement for Section 1112
payments. This SOP provision states: “Lenders may use an escrow account for not
more than 5 business days to facilitate a loan closing. A Lender must not report the
loan on SBA Form 1502 as “disbursed” or charge the Borrower the guaranty fee
until all funds are disbursed from the escrow account. The Lender may only charge
the Borrower interest on funds that have been disbursed out of escrow to the
Borrower.” (Emphasis added.)
2) 504 Loans
For the 504 Loan Program, SBA reminds CDCs that the 504 loans funded by the
debenture sale held on September 16, 2020, are the final 504 loans which are eligible
for Section 1112 payments.
B. Reminder on Availability of Funds under Section 1112
Under section 1107 of the CARES Act, the funds appropriated for carrying out section 1112
of the CARES Act remain available until September 30, 2021. Accordingly, for a Borrower
to be eligible for all six months of payments under section 1112, any period of deferment that
was granted prior to the payments beginning must end by March 30, 2021 for the section
1112 funds to be available for 6 months of payments, with the last of the six months of
payments made on or before September 30, 2021. Loans with a deferment period that ends
after March 30, 2021 would be eligible for section 1112 payments only through September
30, 2021 (if the loan is otherwise eligible for section 1112 payments).
C. Reminder of How to Reconcile Section 1112 Payments for 7(a) Loans In 7th Month
If the Lender received an underpayment for the 6th and final section 1112 payment, then the
Lender may submit a 7th request the following month through the CARES Act menu of the
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1502 Dashboard for the additional funds owed the Lender only after providing a written
request to the FTA, Colson Services.
If the Lender received an overpayment for the 6th and final section 1112 payment, or if the
Lender received payments on a loan that was not eligible for section 1112 payments, then the
additional funds owed the SBA must be immediately returned to SBA via wire to Colson’s
7(a) Collection Account with a reference to Section 1112 and the affected SBA Loan
Number.
D. Deferments After Section 1112 Payments End
1) SBA-Serviced 504 Debentures (Both Purchased and Not Purchased)
With respect to any 504 loan associated with an SBA-serviced debenture (both
purchased and not purchased) for which SBA makes the last of the 6 months of
Section 1112 payments in September, October or November 2020, SBA will
immediately grant an automatic deferment of principal and interest through December
31, 2020.
With respect to these deferments, Borrowers are advised:
a. Interest will continue to accrue on the loans involved;
b. The automatic deferment will be reflected on future monthly payment notices
(SBA Form 1201);
c. Borrowers will need to ensure that any established Preauthorized Debit (PAD)
or recurring payment on the loan does not resume after the last Section 1112
payment is made. If necessary, Borrowers with an SBA established PAD will
have to contact their SBA servicing center to stop recurring payments during
the deferment period. Borrowers that have established a PAD through
Pay.Gov or any other bill pay service are responsible for ensuring that
recurring payments are not made during the deferment period;
d. Borrowers preferring to resume making regular payments during the
deferment period may do so and SBA will apply those payments normally as
if there was no deferment;
e. After this automatic deferment period, Borrowers will be required to resume
making regular principal and interest payments. Upon request, SBA will
evaluate borrower circumstances on a case-by-case basis to determine the
nature and extent of further relief that may be appropriate for each situation;
and
f. Borrowers with loans that are not in “regular servicing” status, or that should
have been moved into liquidation status, will not be granted an automatic
deferment; and
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g. The deferment granted under this paragraph C.1 will not be counted toward
the maximum period of deferment authorized under SOP 50 55, Chapter 12,
paragraph D, which provides that “[g]enerally, the amount deferred should not
exceed six cumulative monthly payments or 20% of the original loan amount,
whichever is less”.
2) 7(a) and 504 Loans that are Serviced by 7(a) Lenders and CDCs
With respect to any 7(a) or 504 loan that is serviced by 7(a) Lenders or CDCs, SBA
strongly encourages Lenders and CDCs (and 504 Third Party Lenders) to consider
providing the Borrower with deferment relief immediately after SBA makes the last
of the 6 months of Section 1112 payments. The Lender and the CDC must document
that the Borrower continues to be adversely affected by the COVID-19 Emergency
when the 6-month period of Section 1112 payments ends, and the loan must be in
“regular servicing” status or should not have been moved into liquidations status.
Any deferment granted under this paragraph D.2 will not be counted toward the
maximum deferment period set forth in the applicable SOP for 504 loans or for 7(a)
loans not sold in the secondary market. See SOP 50 55, Chapter 12, paragraph D for
504 loans; and SOP 50 57, Chapter 12, paragraph D.1 for 7(a) loans, both of which
provide that “[g]enerally, the amount deferred should not exceed six cumulative
monthly payments or 20% of the original loan amount, whichever is less”.
a. 7(a) Loans
In accordance with SOP 50 57 2 and 13 C.F.R § 120.530, Lenders may
assist Borrowers experiencing temporary cash flow issues by deferring
payments for a stated period of time.
i. For a Loan Not Sold on Secondary Market: Lenders may grant a
deferment of up to six (6) consecutive months or 20% of the original
loan amount, whichever is less.
ii. For a Loan Sold on Secondary Market: As outlined in the Secondary
Participation Guaranty Agreement (SBA Form 1086), Lenders may
grant a one-time unilateral deferment of up to 90 days without
requiring prior investor consent. The Lender notifies the investor
through the Fiscal Transfer Agent (FTA) (Info@colsonservices.com)
of the unilateral deferment and reports the affected loan on SBA
Form 1502. Lenders may make additional loan deferments only with
prior investor consent. All notifications of unilateral deferments or
requests for additional loan deferments less than or equal to 12
consecutive months in aggregate must be processed through
Customer Service Online Request (CSOR) on the FTA’s
website. Customer Service Online is available on the Sign In drop
down menu at https://colsonservices.bnymellon.com. Requests for
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loan deferments greater than 12 consecutive months in aggregate
should be sent to Info@colsonservices.com.
For additional guidance regarding deferments of 7(a) loans, please
refer to SOP 50 57 2.
b. 504 Loans
In accordance with SOP 50 55 and 13 C.F.R. § 120.530, CDCs may assist
Borrowers experiencing temporary cash flow issues by deferring payments
for a stated period of time.
i. The amount deferred should not exceed six (6) cumulative monthly
payments or 20% of the original loan amount, whichever is less.
ii. Unless SBA has purchased the Debenture, the CDC must notify the
Central Servicing Agent (CSA) of any deferment in order to avoid
acceleration of the Note and the need to purchase the Debenture.
iii. The Central Servicing Agent (CSA) is authorized to process the
deferment without obtaining the Servicing Center Acknowledgment.
CDCs must provide notice of any deferment to the appropriate
Commercial Loan Servicing Center and to the CSA within 24 hours
after CDC approval of the deferment. The CDC has 10 business days
from its approval of the deferment to obtain the Servicing Center
Acknowledgement and provide it to the CSA.
iv. The current financial information that a CDC is required to obtain
before granting a deferment under SOP 50 55, Chapter 12,
Paragraphs C. l. and C.2., including the borrower's financial
statements, business and personal Federal income tax returns, and
the statement documenting the temporary nature of the cash flow
problem, must instead be obtained, reviewed and analyzed by the
CDC within six (6) months after the deferment is granted.
v. Payments are not required during the deferment period. However,
voluntary payments are permitted.
vi. Interest will continue to accrue during the deferment period.
vii. The CDC must negotiate a Catch-up Plan within six (6) months after
the date the deferment was granted.
viii. The CDC must monitor the loan during the deferment period and
notify the servicing center of any adverse changes on the loan.
For additional guidance regarding deferments of 504 loans, please
refer to SOP 50 55.
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3) 504 Loans that were Granted Deferments Under the COVID-19 Agreements
As noted above, SOP 50 55, Chapter 12, paragraph D, provides that “[g]enerally, the
amount deferred should not exceed six cumulative monthly payments or 20% of the
original loan amount, whichever is less.” In addition, SOP 50 55, Chapter 3,
paragraph D3.b.(5), provides that all CDCs, except PCLP CDCs, must obtain prior
SBA approval before taking any action that involves a “Deferment that exceed[s] six
cumulative monthly payments or 20% of the original loan amount, whichever is less”.
Due to the extraordinary circumstances of the COVID-19 Emergency, SBA has
determined that, for the purposes of the two SOP provisions referenced above, any
period of deferment that was granted on a 504 loan as a result of the COVID-19
Substantial Adverse Change Remedy Certification and Agreement entered into
pursuant to SBA Procedural Notices 5000-20010, 5000-20027 and 5000-20044 will
not be counted toward the maximum deferment period of six cumulative months or
20% of the original loan amount, whichever is less.
Questions
Questions on this Notice may be directed to the Lender Relations Specialists in the local SBA
Field office. The local SBA Field office may be found at https://www.sba.gov/tools/local-
assistance/districtoffices.
William M. Manger
Associate Administrator
Office of Capital Access
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