SBA Procedural Notice 5000-20044: Additional Guidance on 504 Certifications of No Adverse Change for October, November and December 2020 Debenture Sales during the COVID-19 Emergency
Summary
SBA Procedural Notice, Control No. 5000-20044, effective September 4, 2020, to SBA employees and certified development companies, giving additional guidance on 504 certifications of No Adverse Change for the October, November and December 2020 debenture sales during the COVID-19 emergency. It announces that for 504 loans funded through those sales, the COVID-19 Substantial Adverse Change Remedy Certification and Agreement (Rev May 2020) will continue to be available. It applies when the certified development company has reached the conclusions the notice describes.
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SBA Procedural Notice
TO: All SBA Employees and Certified CONTROL NO.: 5000-20044
Development Companies
EFFECTIVE: September 4, 2020
SUBJECT: Additional Guidance on 504
Certifications of No Adverse Change for
October, November and December 2020
Debenture Sales during the COVID-19
Emergency
The purpose of this Notice is to announce that, for the 504 loans that will be funded through the
debenture sales scheduled in October, November and December 2020, the “COVID-19
Substantial Adverse Change Remedy Certification and Agreement (Rev May 2020)” will
continue to be available when the Certified Development Company (CDC) has concluded that
there has been a substantial adverse change in the Borrower’s ability to repay the Project
financing since the submission of the 504 loan application to SBA.
SBA first announced the availability of the COVID-19 Substantial Adverse Change Remedy
Certification and Agreement (“COVID-19 Agreement”) in SBA Procedural Notice 5000-20010,
effective March 25, 2020 (March Notice), for the 504 loans that were funded through the April,
May and June debenture sales. With the adverse economic effects of the pandemic continuing
into the summer, SBA announced in SBA Procedural Notice 5000-20027, effective May 18,
2020 (May Notice), that the COVID-19 Agreement would continue to be available for the
debenture sales scheduled for July, August, and September 2020. SBA also issued SBA
Procedural Notice 5000-20040 on July 28, 2020, “Guidance on Underwriting 504 Loans during
the COVID-19 Pandemic” in which SBA provided guidance on the additional analysis that
CDCs should conduct in underwriting 504 loans during the pandemic.
Due to the unpredictable and recurrent nature of the pandemic and its adverse effects on the
national economy, SBA has determined that the COVID-19 Agreement should continue to be
available to remedy a substantial adverse change in the financial condition of the Borrower that
occurs after loan application and prior to funding. Accordingly, for the October, November and
December 2020 debenture sales, CDCs may proceed with the debenture sale under the conditions
and requirements set forth below.
1. No Substantial Adverse Change. Based on the certifications by the Interim Lender and
the Borrower (and Operating Company if Borrower is an EPC), and based on its own
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SBA Form 1353.3 (4-93) MS Word Edition; previous editions obsolete
Must be accompanied by SBA Form 58
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consideration, the CDC must determine for each loan before the debenture sale whether
the COVID-19 emergency is the immediate and direct cause of a substantial adverse
change in the Borrower’s (or Operating Company’s) ability to repay the Project financing
since the submission of the loan application to SBA. If the CDC concludes there is no
substantial adverse change as a result of the COVID-19 emergency, the CDC would
complete SBA Form 2101 with no changes (assuming that there has been no unremedied
substantial adverse change in the Borrower’s ability to repay the Project financing for any
other reason), and must document and retain its determination in its loan file. The CDC
must notify SBA District Counsel of its conclusion when it submits the closing package
to SBA District Counsel.
SBA notes that, under current law, the Section 1112 payments will not be available for
504 loans that are funded through the debenture sales held after September. If, in the
event that Congress extends the Section 1112 payments to 504 loans that will be funded
through the debenture sales held in October, November or December 2020, the CDC, in
making the determination of substantial adverse change, must consider whether it is
likely that the Borrower (or Operating Company) will have the ability, during any period
that SBA is authorized to make the monthly payments for the 504 loan under section
1112 of the CARES Act, to timely make the payments that will be owed to the Third
Party Lender for the Third Party Loan financing the Borrower’s 504 Project.
2. Substantial Adverse Change. If the CDC concludes that the COVID-19 emergency is the
immediate and direct cause of a substantial adverse change in the Borrower’s ability to
repay the Project financing, the CDC, the Interim Lender, the Third Party Lender and the
Borrower (and Operating Company, if applicable) (collectively referred to as the parties)
may continue with the 504 debenture sale, provided that the parties execute the COVID-
19 Substantial Adverse Change Remedy Certification and Agreement (Rev May 2020)
(referred to as “COVID-19 Agreement (Rev May 2020)”), in addition to SBA Forms
2101, 2287, 2288 and 2289. The COVID-19 Agreement (Rev May 2020) contains
certifications and agreements by all parties regarding, among other things, the remedial
measures that must be taken to address the Borrower’s substantial adverse change as a
result of the COVID-19 emergency, including required deferments of the 504 loan and
the Third Party Loan that will assist the Borrower (and Operating Company, if
applicable) in improving its cash flow. If the Section 1112 payments become available
for 504 loans that will be funded in October, November or December 2020, the Section
1112 payments will begin after the deferment period granted under the COVID-19
Agreement (Rev May 2020) and these payments will be made in accordance with
applicable SBA Procedural Notices. The remedial measures under the Agreement must
include:
a. Immediate Deferments
i. Immediately following the debenture sale, the CDC must agree to grant a
deferment on the 504 loan of all principal and interest for 90 days; and
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SBA Form 1353.3 (4-93) MS Word Edition; previous editions obsolete
Must be accompanied by SBA Form 58
Federal Recycling Program Printed on Recycled Paper
ii. The Third-Party Lender must agree to grant a deferment immediately
following the debenture sale on the Third Party Loan of all principal and
interest for 90 days.
b. The Interim Lender (if applicable), Third Party Lender and the CDC must agree to
make a good faith effort to assist the Borrower with additional remedial measures,
including, but not limited to, assisting the Borrower with locating and applying
for other forms of financial assistance, including other loans or grants available
from Federal, State or local government agencies and entities; and
c. The Borrower (and Operating Company, if applicable) must agree to use its best
efforts to seek out, apply for, and obtain available sources of financial assistance,
as necessary to continue to operate.
For the October, November, and December 2020 debenture sales, the parties must use the
COVID-19 Agreement (Rev May 2020) that is attached to SBA Procedural Notice 5000-20027,
not the previous version that is attached to Procedural Notice 5000-20010. (Note that this
Agreement does not have an SBA form number. It includes the standard footer language that is
used for all SBA procedural notices and should not be confused with a form number for the
document.)
A copy of the fully-executed COVID-19 Agreement (Rev May 2020) must be submitted to the
appropriate SBA District Counsel for review when the CDC submits its closing package to SBA
District Counsel.
Questions on this Notice may be directed to the Lender Relations Specialist 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 for Capital Access
Office of Capital Access
PAGE 3 of 3 EXPIRES: 9/1/21
SBA Form 1353.3 (4-93) MS Word Edition; previous editions obsolete
Must be accompanied by SBA Form 58
Federal Recycling Program Printed on Recycled Paper
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