SBA Procedural Notice: 504 Certifications of No Adverse Change for April through June 2021
Summary
SBA Procedural Notice, Control No. 5000-20098, effective February 26, 2021, to SBA employees and certified development companies, giving additional guidance on 504 certifications of No Adverse Change for the April through June 2021 debenture sales during the COVID-19 emergency. It also carries a reminder about catch-up plans. 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 under the conditions the notice sets.
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SBA Procedural Notice
TO: All SBA Employees and Certified CONTROL NO.: 5000-20098
Development Companies
EFFECTIVE: February 26, 2021
SUBJECT: Additional Guidance on 504
Certifications of No Adverse Change for April
through June 2021 Debenture Sales during the
COVID-19 Emergency and Reminder About Catch-
up Plans
The purpose of this Notice is to announce that, for the 504 loans that will be funded through
the debenture sales scheduled in April through June 2021, the “COVID-19 Substantial
Adverse Change Remedy Certification and Agreement (Rev May 2020)” (COVID-19
Agreement) 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.
In addition, SBA wants to remind CDCs that, for all 504 loans granted a deferment under any
COVID-19 Agreement, the CDC must contact SBA’s Central Servicing Agent (CSA) at least
one month before the end of the deferment period to coordinate the development of the catch-
up plan. The CDC must contact the Borrower before the deferment period ends to determine
the length and the other terms of the catch-up plan. (To efficiently handle the large volume of
loans that are closed each month, SBA has instructed the CSA to initially default the 504 loans
that are granted deferments under the COVID-19 Agreement to a 5-year catch-up plan.)
SBA first announced the availability of the COVID-19 Agreement in SBA Procedural Notice
5000-20010, effective March 25, 2020, for the 504 loans that were funded through the April,
May and June 2020 debenture sales. With the adverse economic effects of the pandemic
continuing through the end of 2020 and into 2021, SBA has continued to make the COVID-19
Agreement available for all subsequent debenture sales. See SBA Procedural Notices 5000-
20027 (July, August, and September 2020), effective May 18, 2020. and SBA Procedural Notice
5000-20044 (October, November and December 2020), effective September 4, 2020. Most
recently, SBA continued to make the COVID-19 Agreement available for the 504 loans funded
through the January, February and March 2021 debenture sales. See SBA Procedural Notice
5000-20064, effective November 24, 2020.
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In addition, in SBA Procedural Notice 5000-20070, effective December 14, 2020, SBA extended
through March 31, 2021 the guidance provided in SBA Procedural Notice 5000-20040, effective
July 28, 2020, on underwriting 504 loans during the COVID-19 pandemic. In SBA Procedural
Notice 5000-20070, SBA provides 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 April, May and June 2021
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
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 completes 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.
Congress has extended the availability of debt relief for the 504 loans identified below under
Section 1112 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), as
amended by Section 325 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and
Venues Act (Economic Aid Act), enacted December 27, 2020, Pub. L. 116-260. Under the
funding plan that SBA submitted to Congress in accordance with Section 1112(c)(7)(B) of
the CARES Act (See SBA Procedural Notice 5000-20095, effective February 16, 2021),
SBA will make Section 1112 payments for 504 loans funded through the April, May and
June 2021 debenture sales as follows:
• For a 504 loan that was approved on or before September 27, 2020, SBA will make
Section 1112 payments for a 3-month period;
o In addition, if this loan was approved before March 27, 2020, SBA will make
Section 1112 payments for an additional 2-month period beginning
immediately after the 3-month period described in the first bullet above, for a
total of 5 months of Section 1112 payments, except that:
o If the loan was approved before March 27, 2020 and the Borrower is assigned
a certain code of the North American Industry Classification System
(NAICS), SBA will make Section 1112 payments for an additional 5-month
period beginning immediately after the 3-month period described in the first
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bullet above, for a total of 8 months of Section 1112 payments. To be eligible
for this 8-month period of Section 1112 payments, the Borrower must be
assigned, according to SBA records, a NAICS code beginning with 61, 71, 72,
213, 315, 448, 451, 481, 485, 487, 511, 512, 515, 532, or 812.
• For a 504 loan approved on or after February 1, 2021, SBA will make Section 1112
payments for a 3-month period; and
• For a 504 loan that was approved beginning on September 28, 2020 and ending on
January 31, 2021, SBA will make no Section 1112 payments.
SBA has considered the availability of the Section 1112 payments for the 504 loans
identified in the bullets above, but continues to be concerned that many, of the Borrowers
will not have the immediate financial ability to timely pay the amounts due on the Third
Party Loan during the authorized periods of section 1112 payments described above.
Accordingly, for the loans funded through the April, May and June 2021 debenture sales that
are eligible to receive the Section 1112 payments for the periods described above, 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 the authorized period
(i.e., 3, 5 or 8 months), , 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. If the Borrower is not
likely to have that ability, the CDC must follow the procedures in paragraph 2 below.
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. The section 1112
payments for the loans that are eligible to receive the 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, including SBA Procedural
Notice 5000-20079. 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
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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.
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
Questions concerning this Notice may be directed to the Lender Relations Specialist in the local
SBA Field Office.
John A. Miller
Acting Associate Administrator
Office of Capital Access
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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
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