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SBA Procedural Notice
TO: All SBA Employees and SBA 7(a) Lenders CONTROL NO.: 5000-808582
SUBJECT: Updated Guidance Regarding No EFFECTIVE: April 2, 2021
Adverse Change Certifications on 7(a) Loans during
the COVID-19 Emergency
On March 26, 2020, SBA issued Procedural Notice 5000-20011, “Guidance Regarding No
Adverse Change Certifications on 7(a) Loans during the COVID-19 Emergency.” The purpose
of this Notice is to update and extend the previous guidance to 7(a) Lenders during the COVID-
19 emergency with respect to the certifications of “no adverse change” required by Loan
Program Requirements (as defined in 13 CFR 120.10) in connection with 7(a) loans (including
Community Advantage (CA) Pilot Program loans).
Loan Program Requirements
As set forth in SOP 50 10 6, Part 2, Section B, Chapter 5, Paragraph D.7., as part of the terms
and conditions of the Authorization, the Lender must obtain certain certifications and agreements
from the Borrower(s), [Operating Company (OC) and Eligible Passive Company (EPC), if
applicable] prior to disbursement of loan proceeds. One of the required certifications is that there
has been no adverse change in Borrower’s (and OC’s) financial condition, organization,
operations, or fixed assets since the date the Loan Application was signed.
In addition, SBA Form 1050, Settlement Sheet, includes a certification by the Lender and the
Borrower that there has been no unremedied adverse change in the Borrower’s or OC’s financial
condition, organization, management, operations, or assets since the date of application that
would warrant withholding or not making disbursement of the loan. Further, at the time of each
subsequent disbursement on the loan, the Lender, by disbursing the loan proceeds, and the
Borrower, by receiving them, are deemed to certify that the prior certifications are true with
respect to every disbursement made.
Adverse Change Considerations
With the continuation of the COVID-19 emergency, the Borrower’s (or OC’s) financial
condition or its ability to repay the 7(a) loan may be experiencing a substantial adverse change as
a direct result of the Federal, State, and local public health measures that have been taken to
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minimize the public’s exposure to the virus. These measures, some of which are government-
mandated, were implemented nationwide and included closures of restaurants, bars, gyms, and
retail stores. In addition, based on the advice of public health officials, other measures, such as
keeping a safe distance from others and sheltering-in-place orders, were implemented, resulting
in a dramatic decrease in economic activity as the public avoided malls, retail stores and other
businesses. This unexpected and sudden change in the national economic condition, which was
beyond the Borrower’s control, presented a unique circumstance, which SBA had hoped would
only be a temporary challenge for all SBA Borrowers, including approved 7(a) applicants who
have not yet closed on their 7(a) loans.
With the development and availability of the COVID-19 vaccines and the lifting of some, but not
all, of the COVID-19 restrictions, the United States and its territories have begun to see
improvements in economic conditions. However, many restrictions have not yet been removed
and the economic situation has not yet returned to previous levels across much of the U.S. As a
result, SBA is extending this guidance through December 31, 2021.
Lenders may continue to consider disbursing or continuing to disburse 7(a) loans if the Lender
has determined that the small business concern can remedy the adverse change under the
following conditions:
1. If the borrower is fully operational, the Lender must work with the small business concern to
verify that the impacted small business concern has a plan to remedy the adverse change, as
demonstrated by, among other things, cash flow projections and proforma financial
statements, and which may include the effect of any future deferment. The Lender must
document in the loan file the Lender’s rationale for disbursing or continuing to disburse the
loan.
2. If the borrower is partially operational, the Lender must determine if the adverse change
since the date of application or of the last disbursement cannot be remedied and is significant
enough to warrant withholding or not making additional disbursements as set forth in SOP 50
10 6, Part 2, Section B, Chapter 5, Paragraph D. If not, the Lender must follow the steps for a
fully operational business above.
3. If the borrower is not operational, no disbursement should be made until the borrower begins
operating again.
4. In all cases, Lenders are encouraged to assist the borrower with locating and applying for
other forms of financial assistance, including, but not limited to, SBA Economic Injury
Disaster Loans (EIDL), SBA Paycheck Protection Program (PPP) Loans, and other loans or
grants available from SBA and other Federal, State, or local government agencies and
entities. For more information on SBA’s COVID-19 relief options, visit SBA’s website at
https://www.sba.gov/page/covid-19-guidance-resources.
5. With the enactment of Section 325 of the Economic Aid to Hard-Hit Small Businesses,
Nonprofits, and Venues Act (Economic Aid Act) (Pub. L. 116-260), enacted December 27,
2020, Congress extended the availability of the debt relief provided under Section 1112 of
the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) for certain 7(a) loans
that were approved on or before September 27, 2020, and for 7(a) loans approved on or after
February 1, 2021 and through September 30, 2021. In making the determination of whether
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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
the Borrower (or OC) has experienced an unremedied adverse change, Lenders must consider
whether it is likely that the Borrower (or OC) will have the ability to timely make the loan
payments due after the period of Section 1112 payments ends. In addition, for certain loans
that will have monthly payments in excess of $9,000 per month, Lenders must consider
whether it is likely that the Borrower (or OC) will have the ability to timely pay the amount
exceeding $9,000 during the period of Section 1112 payments. Under the extension of the
debt relief program provided under the Economic Aid Act, borrowers may be eligible for 3, 5
or 8 months of Section 1112 payments, depending on when the loan was approved, fully
disbursed, and whether borrower’s business is in a hard-hit industry as defined under the
Economic Aid Act or a Community Advantage loan. Lenders must review SBA Procedural
Notices 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), and 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), to determine the number of months of Section 1112 payments for which
the borrower will be eligible and whether the $9,000 cap applies to the loan in question.
Lenders must analyze each 7(a) loan in a commercially reasonable manner, consistent with
prudent lending standards. Unless otherwise stated in this Notice all requirements for continued
borrower creditworthiness remain in effect.
Lender Reporting Requirement
In accordance with the Debt Collection Improvement Act of 1996, Lenders are required to report
information to the appropriate credit reporting agencies whenever they extend credit via an SBA
loan. Thereafter, the Lender should continue to routinely report information concerning
servicing, liquidation, and charge off activities throughout the life cycle of the loan, as specified
in the current version of SOP 50 57, 7(a) Loan Servicing and Liquidation.
Questions
Questions concerning this Notice may be directed to the Lender Relations Specialist in the local
SBA Field Office.
Patrick Kelley
Associate Administrator
Office of Capital Access
PAGE 3 of 3 EXPIRES: 4/1/22
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