Procedural Notice 5000-823852: 7(a) and 504 Section 1112 Wind Down
Summary
SBA Procedural Notice, Control No. 5000-823852, effective December 6, 2021, to SBA employees, 7(a) lenders and certified development companies. It gives further guidance on the Section 1112 Debt Relief Program for the 7(a) and 504 programs as the program winds down. It covers the availability of funds for Section 1112 payments, the return of payments made for ineligible loans, and loan increases requested on or after October 1, 2021.
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SBA Procedural Notice
TO: All SBA Employees, 7(a) Lenders and CONTROL NO.: 5000-823852
Certified Development Companies
SUBJECT: Guidance on the Implementation of the EFFECTIVE: December 6, 2021
Section 1112 Debt Relief Program for the 7(a) and
504 Programs, Including the Availability of Funds
for Section 1112 Payments and the Return of
Payments Made for Ineligible Loans; and Guidance
on Loan Increases Requested on or after October 1,
2021
The purpose of this Notice is to provide further guidance on the implementation of the Section
1112 Debt Relief Program as the program winds down, including: (1) the availability of funding
for Section 1112 payments on loans in the 7(a) and 504 Programs; and (2) the return of payments
made for ineligible loans. Additionally, in section III below, this Notice informs 7(a) Lenders
and Certified Development Companies (CDCs) that no loan increases will be approved for
certain loans on or after October 1, 2021.
Except as provided in this Notice, all other guidance that SBA provided in prior notices with
respect to the implementation of the Section 1112 payments continues to apply, including but not
limited to:
• SBA Procedural Notice 5000-20079, “Guidance on the Implementation of the Extension
of the Section 1112 Debt Relief Program for the 7(a) and 504 Loan Programs, as
Authorized by Section 325 of the Economic Aid to Hard-Hit Small Businesses,
Nonprofits, and Venues Act”, effective January 19, 2021
• SBA Procedural Notice 5000-20095, “Adjustment to Number of Months of Section 1112
Payments in the 7(a), 504 and Microloan Programs Due to Insufficiency of Funds”,
effective February 16, 2021
I. Availability of Funds
Funds will be available to make the Section 1112 payments for the loans described below:
A. New Loans Approved Beginning on February 1, 2021 and Ending on the Dates
Identified Below
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1. 7(a) loans: Funds will be available to make the Section 1112 payments for 7(a) loans that
were approved beginning on February 1, 2021 and ending on or before September 23,
2021. Funds for Section 1112 payments on 7(a) loans were fully exhausted during the
day on September 23, 2021. If a loan was approved on September 23, 2021 after the
funds were exhausted, SBA will notify the Lender that no Section 1112 payments are
available for that loan. In addition, if a Lender submits a request for Section 1112
payments for a loan that was approved after the funds were depleted, SBA will notify the
Lender that funds are not available for SBA to make the Section 1112 payments. For the
loans for which funds are available, SBA will begin to make the payments for the 3-
month period that is authorized for these loans only after the loan is fully disbursed and
the loan is otherwise eligible to receive the payments.
2. 504 loans:
a. Regular 504 and 504 Loans Involving Debt Refinancing with Expansion: Funds
will be available to make the Section 1112 payments for regular 504 loans and 504
loans involving debt refinancing with expansion that were approved on or before
September 7, 2021. SBA will begin to make the payments for the 3-month period
that is authorized for these loans only after the loan is fully disbursed and the loan is
otherwise eligible to receive the payments. With the funds for new regular 504 loans
or 504 loans involving debt refinancing with expansion exhausted on September 7,
2021, no new regular 504 loans or 504 loans involving debt refinancing with
expansion could be approved beginning on September 8, 2021 through September 30,
2021.
b. 504 Loans Involving Debt Refinancing without Expansion: Funds will be
available to make the Section 1112 payments for 504 loans involving debt refinancing
without expansion that were approved on or before September 30, 2021. SBA will
begin to make the payments for the 3-month period that is authorized for these loans
only after the loan is fully disbursed and the loan is otherwise eligible to receive the
payments.
B. Newly Eligible First Round Loans
For a 7(a) or a 504 loan approved on or before September 27, 2020 that was not fully disbursed
on or before September 27, 2020, and that was, or will be, fully disbursed on or after September
28, 2020 (referred to as “Newly Eligible First Round Loans” in Procedural Notice 5000-20079),
funds will be available to make the Section 1112 payments for the 3-month period that is
authorized for these loans and SBA will begin to make the payments only after the loan is fully
disbursed and the loan is otherwise eligible to receive the payments. For loans that were
approved and fully disbursed on or before September 27, 2020, funds will continue to be
available to make the Section 1112 payments for the 6-month period authorized under the
original CARES Act. SBA emphasizes that for all loans eligible for Section 1112 payments,
SBA will begin to make the payments only when the loan is fully disbursed and the loan is
otherwise eligible to receive the payments.
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C. Second Round Section 1112 Payments for 504 and 7(a) Loans Approved Before March
27, 2020
For any 504 or 7(a) loan that has not yet received any or all of the Second Round Section 1112
payments described in Section III.B. of SBA Procedural Notice 5000-20079, funds will be
available to make the Second Round Section 1112 payments for the authorized number of
months when the loan becomes eligible to receive these payments.
D. Revolving Lines of Credit
For 7(a) loans involving revolving lines of credit, funds will continue to be available to make the
First Round and/or Second Round Section 1112 payments for the authorized number of months.
As stated in prior notices, including section III.G.2.b of SBA Procedural Notice 5000-20079 and
section I of SBA Procedural Notice 5000-20023, the Section 1112 payments begin only after the
Borrower has made its first draw on the line of credit. In addition, as stated in the prior notices,
Borrower does not need to maintain a continuous outstanding balance in the revolving line of
credit for the authorized number of months to be eligible for the Section 1112 payments and the
Section 1112 payments for these loans do not need to be made in consecutive months.
For example, if the loan was approved June 1, 2021, Borrower may have an outstanding balance
on the line of credit in August 2021, a zero balance in September through December 2021, and
an outstanding balance again in January and February 2022, and funds will be available for SBA
to make the Section 1112 payments for the three months during which there was an outstanding
balance. An additional example includes a revolving loan that was approved before March 27,
2020, upon which the Borrower made its first draw by September 27, 2020. For the duration of
this revolving loan, the Borrower is eligible to receive six months of First Round Section 1112
Payments in addition to the authorized number of Second Round Section 1112 Payments (either
two or five additional months, as applicable) beginning February 1, 2021.
Accordingly, Lenders must continue to submit the required Section 1112 monthly reports for
these loans to request the Section 1112 payments for the number of months authorized for First
Round and/or Second Round Section 1112 Payments. SBA reminds Lenders that SBA will
make these loan payments in accordance with the payment terms stated in the loan authorization
and Section 1112 payments may not be used to cover any balloon payments.
II. 7(a) Lenders Must Return Payments Made on Ineligible Loans
SBA reminds 7(a) Lenders that, if they submit a request for Section 1112 payments and received
such payments on a loan that was not yet eligible to receive the payment(s) because the loan had
not been fully disbursed or for any other reason, the Lender must immediately return the
payment to SBA via wire to the 7(a) Collection Account of SBA’s Fiscal Transfer Agent with a
reference to Section 1112 and the affected SBA Loan Number. The Lender may resubmit the
request for the Section 1112 payments after the loan has been fully disbursed and the loan is
otherwise eligible to receive the payments. Some examples of loans that would not be eligible
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for Section 1112 payments to cover all or a portion of the regular monthly loan payment include,
but are not limited to:
A. Loans not yet fully disbursed (loan may become eligible once fully disbursed);
B. Loans that were approved beginning on September 28, 2020 through January 31, 2021;
C. Loans that have received all of the Section 1112 payments to which they are entitled;
D. For Second Round Section 1112 Payment (as described in SBA Procedural Notice 5000-
20079), the portion of the regular monthly loan payment that is in excess of $9,000; and
E. Loans in liquidation status or that the Lender should have transferred into liquidation
status in accordance with Standard Operating Procedure (SOP) 50 57 2 or SOP 50 55, as
applicable.
III. No Loan Increases will be Approved for Certain Loans on or after October 1, 2021
For any 504 loan or 7(a) loan that was approved on or before September 30, 2021, SBA will not
approve any request for an increase to the 504 loan or 7(a) loan on or after October 1, 2021. In
addition, for a 504 Project that was approved beginning on December 27, 2020 and ending on
September 30, 2021, SBA will not approve any request for an increase to the Third Party Loan
on or after October 1, 2021.
Options that are available to cover the 7(a) or 504 Borrower’s need for additional funds include
the following:
A. Borrower can fund the amount of any increase needed with an additional borrower
contribution.
B. Borrower can obtain outside financing to cover the amount of any increase needed (i.e.,
companion SBA 7(a) loan, conventional loan, etc.)
C. Borrower can cancel the existing 504 or 7(a) approval authorization and reapply for a new
replacement 504 Project or 7(a) loan to cover the increased project costs. However, if this
option is exercised, the replacement loans would not be eligible for any fee subsidy or
waiver or Section 1112 payments that would have been authorized for the original 504
Project or 7(a) loan.
D. To address the need for additional funds for a 504 Project approved on or before
December 26, 2020, SBA may approve: (1) a request for an increase in the Third Party
Loan, subject to credit underwriting review by the Sacramento Loan Processing Center
(SLPC); or (2) subject to SLPC review, an application for a second 504 loan to fund the
need for additional funds, with the Third Party Loan for the second project taking third
lien position and the 504 loan on the second project taking fourth lien position. After the
second 504 Project is approved, the CDC may request, through a 327 action, that SBA
subordinate the original 504 loan from second lien position to third lien position,
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Must be accompanied by SBA Form 58
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allowing the Third Party Loan and the 504 loan of the second 504 Project to move into
second and fourth lien positions, respectively.
Questions
Questions on this Notice may be directed to the Lender Relations Specialists in the local SBA
Field office.
John Miller
Deputy Associate Administrator
Office of Capital Access
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Must be accompanied by SBA Form 58
Federal Recycling Program Printed on Recycled Paper
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