SBA Procedural Notice: 7a and 504 Section 1112 Payment Extension
Summary
SBA Procedural Notice, Control No. 5000-20079, effective January 19, 2021, to SBA employees, 7(a) lenders and certified development companies. It gives guidance on implementing 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. It recalls that the CARES Act, Pub. L. 116-136, was enacted on March 27, 2020 to provide emergency economic relief across the American economy, including to small businesses.
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SBA Procedural Notice
TO: All SBA Employees, 7(a) Lenders, and CONTROL NO.: 5000-20079
Certified Development Companies
SUBJECT: Guidance on the Implementation of the EFFECTIVE: January 19, 2021
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
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the CARES Act),
Pub. L. 116-136, was enacted to provide emergency and immediate national economic relief and
assistance across the American economy, including to small businesses, workers, families, and
the health-care system, to alleviate the severe economic hardships and public health threat
created by the 2019 Novel Coronavirus pandemic. Section 1112 of the CARES Act, as set forth
in Pub. L. 116-136, authorizes SBA to pay, for a 6-month period, the principal, interest, and
associated fees that Borrowers owe on covered 7(a) loans, 504 loans, and Microloans (hereafter
“First Round Section 1112 Payments”).
Under 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, Congress has amended
section 1112 to authorize a second round of Section 1112 payments (hereafter referred to as
“Second Round Section 1112 Payments”), which will cover the principal, interest, and associated
fees that Borrowers owe on covered loans for the periods described below in Section III.B,
subject to the availability of funds. In addition, Section 325 of the Economic Aid Act expands
the eligibility of covered loans for First Round Section 1112 Payments, as described below in
Section II.A, subject to the availability of funds.
The purpose of this Notice is to provide guidance on the implementation of Section 1112 of the
CARES Act, as amended by Section 325 of the Economic Aid Act, and the Second Round
Section 1112 Payments that are authorized for the 7(a), 504, and Microloan Programs.
I. Availability of Funds for All Section 1112 Payments
Under section 323(d)(1)(G) of the Economic Aid Act, Congress appropriated $3,500,000,000 for
carrying out section 325 of the Economic Aid Act and these funds remain available until
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expended. Under Section 1112(c)(7) of the CARES Act, SBA will monitor whether this amount
is sufficient to make the payments for the periods authorized by Section 1112(c), as amended. If
SBA determines that the amount is insufficient, SBA will, in accordance with Section
1112(c)(7), develop and submit to Congress a plan to proportionally reduce the number of
months provided for each authorized period described in Sections II.A and III.B below, while
ensuring that all amounts made available to make Section 1112 payments are fully expended.
The number of months of section 1112 payments described in Sections II.A and III.B of this
Notice are subject to adjustment based on the availability of funds.
II. First Round Section 1112 Payments
A. Implementation of the Expanded Eligibility of Covered Loans for First Round Section
1112 Payments
Covered loans that were approved on or before September 27, 2020 are now eligible for First
Round Section 1112 Payments, even if the loan was not fully disbursed on or before September
27, 2020. Under Section 1112 of the CARES Act, as originally enacted, SBA required that, to be
eligible for the 6-month period of Section 1112 payments, the covered loan had to be moved into
a regular servicing status (i.e., fully disbursed) by September 27, 2020 (or, for Community
Advantage Recovery Loans (CARL loans), by October 1, 2020). For example, a loan that was
approved on or before September 27, 2020, but not fully disbursed until after September 27,
2020 (after October 1 for CARL Loans), would have been deemed ineligible for the First Round
Section 1112 Payments.
Section 325(a) of the Economic Aid Act amends Section 1112(c) of the CARES Act by requiring
that the loan’s eligibility for Section 1112 payments be based on the date on which the loan was
approved by SBA, not the date on which the loan was fully disbursed. Under Section 325(b) of
the Economic Aid Act, this amendment is effective “as if included in the CARES Act (Public
Law 116–136; 134 Stat. 281)”. Accordingly, any covered loan that was approved on or before
September 27, 2020 is eligible for the First Round Section 1112 Payments, even if it was not
fully disbursed by that date, and will begin to receive the payments with the first payment due
after the loan is fully disbursed. 1
SBA issues the following guidance for making the First Round Section 1112 Payments for loans
approved on or before September 27, 2020 and fully disbursed on or after September 28, 2020
(“Newly Eligible First Round Loans”):
1. For 7(a) Loans:
a. Lenders Must Identify Newly Eligible First Round Loans:
i. Lenders must identify the 7(a) loans in their portfolio that were approved on or before
September 27, 2020 but not fully disbursed by that date. (For CARL loans, Lenders
1
See Section-by-Section summary of the bill released by the U.S. Senate Committee on Small Business and
Entrepreneurship on December 21, 2020 (Section 1112 payments “should be made only once the loan is fully
disbursed”).
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must identify the loans approved on or before September 27, 2020 but not fully
disbursed by October 1, 2020.) If and when that loan is fully disbursed, and if the loan
is in a regular servicing status, the loan is eligible to receive Section 1112 payments
for a 6-month period beginning with the next payment due or, if the loan is on
deferment, beginning with the first month after the deferment period. See paragraph
C.1 of SBA Procedural Notice 5000-20020 for further information on the procedures
related to deferments that apply to loans receiving the First Round Section 1112
Payments.
ii. Lenders must determine if any of the loans identified in paragraph 1.a.i above were
fully disbursed between September 28, 2020 and the effective date of this Notice and,
if so, if the loan is currently in a regular servicing status. If the loan satisfies both
criteria, the Lender should report these Newly Eligible First Round Loans for payment
in its Monthly Section 1112 Report as soon as possible and no later than with the
Monthly Section 1112 Report due by March 8, 2021.
iii. If the loan has not yet been fully disbursed as of the date of this Notice, the Lender
must wait until after the loan is fully disbursed to begin to request the First Round
Section 1112 Payments. Lenders must continue to monitor when a 7(a) loan that was
approved on or before September 27, 2020 is fully disbursed. After the loan is fully
disbursed and moved into a regular servicing status, the Lender must include this
Newly Eligible First Round Loan for payment in its Monthly Section 1112 Report
beginning with the month in which the first payment is due.
b. Payment Process for Newly Eligible First Round Loans
i. SBA will make the payments for the Newly Eligible First Round Loans based on the
information that Lenders are required to submit each month through the CARES Act
menu of the 1502 Dashboard on the Fiscal Transfer Agent’s (FTA) website
(https://colsonservices.bnymellon.com) (“Monthly Section 1112 Report”). See
paragraphs A.1 and B of SBA Procedural Notice 5000-20023. In submitting these loans
for payment, Lenders must comply with the criteria and procedures set forth in the prior
Notices that SBA issued for the First Round Section 1112 Payments (“First Round
Notices”, listed in Section II.B below), except as otherwise revised by this Notice.
ii. To comply with the requirement set forth in Section 1112(c)(8)(B) that SBA make the
Section 1112 payments by the 15th day of the month, SBA is hereby revising the First
Round Notices to require that Lenders submit the Monthly Section 1112 Report for the
Newly Eligible First Round Loans no later than the 7th day of each month, or the next
business day (instead of by the 10th day of each month or the next business day).
iii. Lenders must apply the First Round Section 1112 Payments for the Newly Eligible
First Round Loans beginning with the next payment due.
EXAMPLES: If a loan on a monthly payment schedule was approved on August 31,
2020, and fully disbursed on October 20, 2020, the loan is now eligible for the First
Round Section 1112 Payments and the following procedures would apply:
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Example A: If the Borrower made the loan payments for November and
December 2020 and January 2021, SBA would make the Section 1112 payments
for a 6-month period beginning with the next monthly loan payment due in
February 2021. With its February Monthly Section 1112 Report, Lender would
submit the information needed for SBA to make the loan payment for one month
(February), and then submit the information necessary for making the payments in
each of the five subsequent months.
Example B: If the loan payments for November and December 2020 and January
2021 are past due, SBA would make the Section 1112 payments for a 6-month
period beginning with the amounts past due for November, December and
January. With its February Monthly Section 1112 Report, Lender would submit
the information needed for SBA to make the loan payments for four months
(November through February). The Lender would then submit the loan
information necessary for making the payments in each of the two subsequent
months (March and April).
iv. The First Round Section 1112 Payments must be completed before a Newly Eligible
First Round Loan may receive any Second Round Section 1112 Payments, as
described in Section III below.
2. For 504 loans:
a. SBA’s Central Servicing Agent (CSA) will review SBA’s 504 portfolio and identify the
504 loans that were approved on or before September 27, 2020 and funded on or after
September 28, 2020. If the loan was funded on or after September 28, 2020, and the loan is
in a regular servicing status, the loan is eligible to receive Section 1112 payments for a 6-
month period beginning with the next payment due or, if the loan is on deferment,
beginning with the first month after the deferment period. SBA will make the payments by
the 15th day of the month.
b. The CSA will process the Section 1112 payments for Newly Eligible First Round Loans in
accordance with the First Round Notices listed in Section I.B below, except as otherwise
revised by this Notice.
c. The First Round Section 1112 Payments must be completed before the loan may receive
any Second Round Section 1112 Payments, as described under Section III below.
B. Continued Applicability of Prior SBA Notices to All First Round Section 1112 Payments
SBA issued several Notices providing guidance on the implementation of the First Round
Section 1112 Payments and, except as revised below and by Section II.A of this Notice, Lenders
must continue to follow the guidance in these prior Notices with respect to any First Round
Section 1112 Payment:
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• 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.
With respect to 7(a) loans that are not purchased by SBA, Paragraphs B.1.b, B.3 and B.4 of
the above Notice are hereby revised to provide that 7(a) Lenders are required to submit the
Monthly Section 1112 Report by the 7th day of each month or the next business day, and
that SBA will make that month’s payment by the 15th day of each month.
In addition, with respect to any First Round Section 1112 Payment, the above Notice is
hereby revised by adding a new paragraph B.12 to read as follows: “In accordance with
Section 1112(c)(8)(A) of the CARES Act, no Lender may charge a late fee to a Borrower
with respect to a covered loan during any period in which SBA is making Section 1112
payments with respect to the loan.”
• 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.
With respect to 7(a) loans that have been purchased by SBA, Paragraph A.3 of the above
Notice is hereby revised to provide that 7(a) Lenders are required to submit the Monthly
Section 1112 Report by the 7th day of each month or the next business day, and that SBA
will make that month’s payment by the 15th day of each month.
• 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.
• SBA Procedural Notice 5000-20049, “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”, effective September 24, 2020.
• SBA Procedural Notice 5000-20058, “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 October 21, 2020.
III. Second Round Section 1112 Payments
A. Definitions. For the purposes of implementing the Second Round Section 1112 Payments,
the terms below have the following meaning:
1. A “covered loan” means a loan that is guaranteed by SBA (or for the 504 Loan Program, a
loan that is funded by a debenture that is guaranteed by SBA) under:
a. Section 7(a) of the Small Business Act (15 U.S.C. 636(a)), including a loan made under the
Community Advantage Pilot Program. A “covered loan” excludes a loan made under
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paragraph (36) of such section 7(a), as added by section 1102 of the CARES Act (the
Paycheck Protection Program); or
b. title V of the Small Business Investment Act of 1958 (15 U.S.C. 695 et seq.) (the 504 Loan
Program).
2. A loan in “regular servicing status”:
a. Includes any loan that has been moved from “approval” status (governed by SOP 50 10) to
“regular servicing” status, which occurs when the loan has been closed and the final loan
disbursement has been made (revolving lines of credit are considered fully disbursed when
the loan has been closed and the initial loan disbursement has been made);
b. Does not include any loan that has been moved from “regular servicing” into “liquidation”
status, or any loan that should have been moved pursuant to SBA Loan Program
Requirements from “regular servicing” into “liquidation” status prior to the first or next
payment due date covered by Section 1112. If the Lender receives a payment under Section
1112 for a loan that the Lender failed to move into liquidation status as required by SBA
Loan Program Requirements, the Lender must immediately notify SBA that it has placed
the loan in liquidation status and immediately return the payment. A Borrower that is
granted a deferment before the payments begin under Section 1112 will not be removed
from regular servicing status for failing to make any payments required by a catch-up plan;
and
c. generally, should not include any loan that is more than 120 days past due (as counted back
from the first payment due date covered under section 1112).
3. “Lender” means either a 7(a) Lender or a Certified Development Company (CDC).
4. “Borrower” means the obligor of a 7(a) or a 504 Loan.
5. “Associated fees” means the fees paid by the Borrower on a monthly basis including:
a. For 504, the CSA fee, the CDC servicing fee, and the annual SBA guarantee fee paid on a
monthly basis by the Borrower.
b. For 7(a), the extraordinary servicing fee authorized by 13 CFR 120.221(b).
B. Scheduling of Second Round Section 1112 Payments.
SBA will make Second Round Section 1112 Payments for a covered loan that is in a regular
servicing status for the periods described below:
1. For 504 Loans and 7(a) Loans (except for loans made under the Community Advantage
Pilot Program):
a. For a loan that was approved before March 27, 2020 and is not on deferment, SBA will
make the Second Round Section 1112 Payments as follows:
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i. For a 3-month period beginning with the first payment due on the loan on or after
February 1, 2021. For any loan that is continuing to receive the First Round Section
1112 Payments on or after February 1, 2021, this 3-month period for the Second Round
Section 1112 Payments does not begin until the first month after SBA has completed the
First Round Section 1112 Payments; and
ii. For an additional 5-month period immediately following the end of the 3-month period
for a Borrower that, according to the records of SBA, is assigned a North American
Industry Classification System code beginning with 61, 71, 72, 213, 315, 448, 451, 481,
485, 487, 511, 512, 515, 532, or 812.
b. For a loan that was approved before March 27, 2020 and is on deferment, SBA will make
the Second Round Section 1112 Payments as follows:
i. For a 3-month period (beginning on or after February 1, 2021) beginning with the later
of:
(a) the next payment due on the covered loan after the deferment period; or
(b) the first month after SBA has completed the First Round Section 1112 Payments.
ii. For an additional 5-month period immediately following the end of the 3-month period
for a Borrower that, according to the records of SBA, is assigned a North American
Industry Classification System code beginning with 61, 71, 72, 213, 315, 448, 451, 481,
485, 487, 511, 512, 515, 532, or 812.
c. For a loan approved during the period beginning on February 1, 2021 and ending on
September 30, 2021, for the 6-month period beginning with the first payment due on the
loan after the loan has been moved into a regular servicing status.
d. For a loan approved during the period beginning on March 27, 2020 and ending on
September 27, 2020, SBA may make Second Round Section 1112 Payments if SBA
determines that there are sufficient funds.
e. A loan approved during the period beginning on September 28, 2020 and ending on
January 31, 2021 is not eligible to receive Second Round Section 1112 Payments under
Section 1112 of the CARES Act, as amended by Section 325 of the Economic Aid Act.
Lenders are prohibited from cancelling a loan approved during this period and resubmitting
a loan for a similar purpose on or after February 1, 2021 in order to obtain Section 1112
payments for the Borrower. Lenders are also prohibited from refinancing a loan on or after
February 1, 2021 that was approved beginning on September 28, 2020 and ending on
January 31, 2021 in order to obtain Section 1112 payments for the Borrower.
2. For 7(a) Community Advantage Loans:
a. For a loan that was approved before March 27, 2020 and not on deferment, SBA will make
the Second Round Section 1112 Payments for an 8-month period beginning with the first
payment due on the loan on or after February 1, 2021. For any loan that is continuing to
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receive the First Round Section 1112 Payments on or after February 1, 2021, this 8-month
period for the Second Round Section 1112 Payments does not begin until the first month
after SBA has completed the First Round Section 1112 Payment.
b. For a loan that was approved before March 27, 2020 and is on deferment, SBA will make
the Second Round Section 1112 Payments for an 8-month period (beginning on or after
February 1, 2021) beginning with the later of:
i. The next payment due on the covered loan after the deferment period; or
ii. The first month after SBA has completed the First Round Section 1112 Payments.
c. For a loan approved during the period beginning on February 1, 2021 and ending on
September 30, 2021, for the 6-month period beginning with the first payment due on the
loan after the loan has been moved into a regular servicing status.
d. For a loan approved during the period beginning on March 27, 2020 and ending on
September 27, 2020, SBA may make Second Round Section 1112 Payments if SBA
determines that there are sufficient funds.
e. A loan approved during the period beginning on September 28, 2020 and ending on January
31, 2021 is not eligible to receive Second Round Section 1112 Payments under Section
1112 of the CARES Act, as amended by Section 325 of the Economic Aid Act. Lenders are
prohibited from cancelling a loan approved during this period and resubmitting a loan for a
similar purpose on or after February 1, 2021 in order to obtain Section 1112 payments for
the Borrower. Lenders are also prohibited from refinancing a loan on or after February 1,
2021 that was approved beginning on September 28, 2020 and ending on January 31, 2021
in order to obtain Section 1112 payments for the Borrower.
C. Monthly Payment Limit for Second Round Section 1112 Payments
1. Monthly Section 1112 Payment May Not Exceed $9,000
Under Section 1112(c)(4), no single monthly payment of principal, interest, and associated fees
that is made by SBA in a Second Round Section 1112 Payment may total more than $9,000.
Lenders must not, therefore, submit a request to SBA to make any Section 1112 payment that
exceeds the monthly amount of $9,000. For a loan for which the Borrower makes loan payments
less frequently than monthly, the monthly loan payment will be calculated based on the annual
loan payment amount divided by 12.
2. Procedures Relating to Any Excess Due
The Borrower will be responsible for any amount that exceeds $9,000 (“excess due”) and must
either pay the Lender the amount over $9,000 at the time the payment is due or enter into an
agreement with the Lender in accordance with SBA’s Loan Program Requirements and prudent
lending standards to pay that amount under mutually agreeable terms. SBA will issue further
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guidance on the procedures for addressing any excess due with respect to 7(a) loans sold in pools
in the secondary market and with respect to 504 loans. For additional financial assistance, SBA
encourages Borrowers to apply for assistance under other available programs, including the
Paycheck Protection Program and EIDL, if applicable.
D. One-loan Limitation for Certain Borrowers
A Borrower that has received, is receiving, or will receive, Section 1112 payments on a loan that
was approved beginning on March 27, 2020 and ending on September 27, 2020 may not receive
assistance under Section 1112 for any other loan approved beginning on or after February 1,
2021. See Section 1112(g), as amended. This one-loan limitation does not apply to affiliates of
the Borrower.
E. Payment Processes for the Second Round Section 1112 Payments
1. For All 7(a) Loans Serviced by 7(a) Lenders (Including Community Advantage Loans):
For all 7(a) loans serviced by Lenders (whether purchased or not purchased by SBA), Lenders
are required to submit to SBA by the 7th day of each month (or the next business day), the
information required under paragraphs a. through d. below, and SBA will make the Second
Round Section 1112 Payment based on that information by the 15th day of that month. For
example, for the monthly loan payment that is due on or after February 1, 2021, Lenders must
submit the information required under paragraphs a. through d. below by February 8, 2021 (since
February 7 is a Sunday), and SBA will make the Section 1112 payment by February 15, 2021.
Lenders must submit the information described below through the CARES Act menu of the 1502
Dashboard on the FTA’s website (https://colsonservices.bnymellon.com). Lenders will have the
option to perform loan level data entry or upload portfolio information utilizing the Section 1112
Excel template:
a. the month in which SBA should begin making the section 1112 payments to Lenders. For
loans in deferment, the first month for the section 1112 payment is the month after the
deferment period ends;
b. the total outstanding loan payment amount that is due and the number of monthly
payments that is included in this amount. The amount must include both the guaranteed
and non-guaranteed portions of the 7(a) loan. Lenders must not submit a total outstanding
loan payment amount that exceeds $9,000 (see Section III.C above);
c. the ACH credit instructions for making the payment directly to the Lenders (SBA will not
make the payments to any Lender Service Providers). Please be advised that SBA will
make the payments to 7(a) Lenders using the DDA ACH information supplied by
Lenders. SBA will make a payment for each loan on an individual basis so that Lenders
will be able to match the received payment with the corresponding loan. Each
disbursement will include an ACH addenda record using the structured layout that is
shown in the table that is available in the Downloads section of the FTA’s website. This
table includes payment details that Lenders can use for automating the posting of these
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payments to the Lender’s record system. For Lenders unable to automate the posting of
these payments, the record layout should be referenced to determine what the payment is
for when posting the payment manually; and
d. a certification that:
i. all of the loan information that is being submitted to SBA through the CARES Act
menu of the 1502 Dashboard is true and correct;
ii. each loan is in regular servicing status in accordance with SBA Loan Program
Requirements;
iii no loan is in liquidation status, or should have been moved pursuant to SBA Loan
Program Requirements from “regular servicing” into “liquidation” status prior to the
first payment due date covered by section 1112;
iv. the information is being submitted by an authorized employee or agent of Lender
acting within the scope of Lender’s authority and Lender acknowledges responsibility
for all entries and certifications made on its behalf; and
v. any other certification required by SBA.
2. For SBA-Purchased 7(a) Loans Serviced by Lenders:
For SBA-purchased 7(a) loans serviced by Lenders, the amount that SBA will pay to the Lender
will be the same as if the Borrower were making the full loan payment directly to the Lender.
The Lender must remit SBA’s share of the payment no later than 30 calendar days from the date
of receipt of the payment via an SBA Form 172 on U.S. Treasury’s website
(https://www.pay.gov/public/form/start/3728021.
3. For 504 loans:
a. For 504 Loans Serviced by CDCs: SBA will make the Second Round Section 1112
Payments by the 15th day of each month to the Central Servicing Agent (CSA) based on
information maintained in the CSA E-Tran system, and the CSA will make no ACH debits
to the Borrower’s account during the period in which the loan is receiving Second Round
Section 1112 Payments.
b. For SBA-purchased Debentures or other 504 loans serviced by SBA: For 504 loans
that are serviced by SBA and are in regular servicing status, SBA will credit the loan with
the section 1112 payment starting with the Next Installment Due Date.
F. Loans on Deferment Before Second Round Section 1112 Payments Begin
1. 7(a) Loans. For any covered 7(a) loan that has been granted a deferment, the Borrower may
voluntarily decide to end the approved period of deferment early to begin the Second Round
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Section 1112 Payments. Once payments begin, the period must be continuous and may not be
interrupted by deferment.
2. 504 Loans
a. 504 Loans Subject to COVID-19 Agreements
i. Borrower Requests to Terminate Deferment Early
For a 504 loan that has been granted a deferment to remedy a substantial adverse change
under a COVID-19 Agreement, the Borrower may submit a request to the CDC to
terminate the “COVID-19 Substantial Adverse Change Remedy Certification and
Agreement” (COVID-19 Agreement) and end the approved period of deferment early to
begin the Second Round Section 1112 Payments. The CDC must submit this request to
the appropriate SBA Commercial Loan Servicing Center (CLSC) for approval. The
CDC must provide the CLSC with its evaluation of whether the Borrower will have the
ability to timely make the payments owed under the Third Party Loan (TPL) during the
Second Round Section 1112 Payments. If the CLSC concludes that it is not likely that
the Borrower will have the ability to timely make the TPL payments during the period of
SBA payments, the CLSC will deny the request to end the deferment early, unless the
CDC submits a written commitment by the Third Party Lender to the CLSC that, if the
COVID-19 Agreement is terminated, the Third Party Lender will grant the Borrower a
deferment on the TPL that covers the period of the Second Round Section 1112
Payments.
NOTE: In order for SBA to make the Section 1112 payment by the 15th day of the
month, the CSA must receive notice from the CLSC of the CLSC’s approval to
terminate the COVID-19 Agreement by the 4th business day of the month. If such notice
is received, the CSA will process the deferment cancellation and make the Section 1112
payment by the 15th day of that month. To meet the schedule for payment by the 15th
day of the month, CDCs are advised that they must submit the Borrower’s request
to terminate the COVID-19 Agreement to the appropriate CLSC no later than the
25th day of the previous month, or the next business day. In the subject line of the
request to the CLSC, the CDC must insert “Rescission of Deferment of COVID-19
Agreement”. If the CLSC’s approval to terminate the COVID-19 Agreement is received
after the 4th business day, the CSA will not process the Section 1112 payment until the
following month.
ii. Catch-up Plans for Deferments Granted Under COVID-19 Agreements
To efficiently handle the large volume of loans that are closed each month, SBA has
instructed the CSA to initially place the 504 loans that are granted deferments under the
COVID-19 Agreement on a 5-year catch-up plan. For these loans, the CDC must contact
the 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.
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b. Adverse Change Determination for 504 Loans Funded After February 1, 2021 that are
Eligible for First or Second Round Section 1112 Payments
Under Section 1112(c) of the CARES Act, as amended, Congress has authorized payments
under Section 1112 for a 6-month period for 504 loans that were approved on or before
September 27, 2020, as well as for 504 loans that will be approved during the period
beginning February 1, 2021 and ending September 30, 2021. Subject to the availability of
funds, the Section 1112 payments for these loans would begin with the first payment due
after the debenture sale that funds the loan. When making the determination of substantial
adverse change required for these loans before funding, the CDC must consider whether it
is likely that the Borrower (or Operating Company) will have the ability, during the 6-
month period that SBA is authorized to make the monthly payments, 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 set forth in the applicable SBA Procedural Notice for remedying the
adverse change, including the execution of the COVID-19 Agreement (Rev May 2020).
(The applicable Notice for the February and March 2021 debenture sales is SBA
Procedural Notice 5000-20064. SBA may issue additional notices to address subsequent
debenture sales, as appropriate.)
c. Other Deferments Granted by CDCs
For any 504 loan that was granted a deferment by the CDC other than by the COVID-19
Agreement, the Borrower may voluntarily decide to end the approved period of deferment
early to begin the Second Round Section 1112 Payments, and Lenders must inform
Borrowers that it is their choice to either continue the deferment and begin receiving the
SBA payments for the authorized period of time after the deferment ends OR end the
deferment early to begin receiving the SBA payments. Once the Second Round Section
1112 Payments begins, the period must be continuous and may not be interrupted by
deferment.
NOTE: In order for SBA to make the Section 1112 payment by the 15th day of the month,
CDCs must submit the Borrower’s request to cancel a deferment to the CSA by the 4th
business day of that month. If the CSA receives a request to cancel a deferment after the
4th business day, the CSA will not process the Section 1112 payment until the following
month.
G. Additional Guidance on Second Round Section 1112 Payments
The guidance provided below for the Second Round Section 1112 Payments is carried over from
the guidance that SBA provided in prior notices issued with respect to the First Round Section
1112 Payments (except for paragraph 1.e below):
1. For 7(a) and 504 Loans:
a. Payments Received From Borrowers During Second Round
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For 7(a) Loans, if a Lender receives a regular loan payment from a Borrower, in whole or
in part, on a loan for which SBA is making the Section 1112 payment, the Lender must
inform the Borrower that it has the option of the Lender either returning the loan payment
to the Borrower or applying the loan payment to further reduce the loan balance after
application of SBA’s payment, provided that the Lender complies with SBA Loan
Program Requirements applicable to prepayments (i.e., the requirements in 13 CFR
120.223 related to the subsidy recoupment fee or, for loans sold in the secondary market,
the requirements related to prepayments of greater than twenty percent (20%) of the
principal amount outstanding at the time of prepayment.)
For 504 Loans, Borrowers may not make any partial prepayments on a 504 loan for which
the debenture has not been purchased. Accordingly, for a 504 loan for which the debenture
has not been purchased, if a 504 Borrower makes any regular monthly loan payments, in
whole or in part, during the authorized period that SBA is making the loan payments, the
payment must be returned to the Borrower unless the payment is being made to cover any
past due amounts. For a 504 loan for which the debenture has been purchased, if the
Borrower makes any regular monthly loan payments, in whole or in part, during the
authorized period that SBA is making the loan payments, the Lender must inform the
Borrower that it has the option of the Lender either returning the loan payment to the
Borrower or applying the loan payment to further reduce the loan balance after application
of SBA’s payment.
b. Prepayments in Full
For any loan that is scheduled to be prepaid in full, the last payment that SBA will make
under Section 1112 will be the monthly loan payment due prior to the date of prepayment.
c. Catch-up Plans or Other Settlements.
With respect to any loan for which the Borrower is required to make payments under a
catch-up plan or other settlement, Borrowers continue to be obligated to make these
payments in accordance with the catch-up plan or settlement during the authorized period
of SBA payments. No payments that SBA makes under section 1112 of the CARES Act
may be used to cover payments owed by the Borrower under the catch-up plan or
settlement, i.e., SBA intends to exclude from the section 1112 payment that portion of the
loan payment that is attributable to the amount that the Borrower owes under the catch-up
plan or settlement and that is over and above the regular payment of principal and interest
(and any associated fees) on the loan. SBA will cover the regular payment owed on the
loan that is not related to the catch-up plan or settlement.
d. Payments Will Not Exceed Outstanding Loan Balance
SBA payments will not exceed the outstanding balance of principal, interest and
associated fees owed on a covered loan by the Borrower. The SBA payments may not be
used to pay any outstanding late fees owed by the Borrower.
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e. Prohibition on Lenders Charging Late Fees
In accordance with Section 1112(c)(8)(A) of the CARES Act, no Lender may charge a late
fee to a Borrower with respect to a covered loan during any period in which SBA is
making Section 1112 payments with respect to the loan, including on any amount that
exceeds the monthly limit of $9,000 on a Section 1112 payment.
2. For 7(a) Loans:
a. Loan Payments Less Frequent Than Monthly.
For a covered loan for which the Borrower makes loan payments less frequently than
monthly (i.e., annually, semi-annually or quarterly), SBA will make the loan payment
beginning with the next payment due, and the maximum amount that SBA will pay on
these loans will be calculated by dividing the total annual loan payment amount by 12 and
multiplying the result by the maximum number of months for which the loan is eligible to
receive Section 1112 payments as set forth in Section III.B above. Lenders must not
request the Section 1112 payment for the loan before the payment is due.
If the Second Round Section 1112 Payments is for a 6-month period, see Section III.B.1.c
and III.B.2.c above, and the loan is scheduled for quarterly payments, SBA will make a
total of four separate payments. The first of the four payments will cover the full amount
due for the next quarterly payment, which is equal to three months of debt relief. For each
of the three months thereafter, SBA will make three monthly payments in equal
installments to cover the full amount due for the next quarterly payment.
b. Revolving Lines of Credit.
For revolving lines of credit, SBA will make the loan payments in accordance with the
payment terms stated in the loan authorization, and the Section 1112 payments will begin
only after the Borrower has made its first draw on the line of credit. A Borrower does not
need to maintain a continuous outstanding balance in the revolving line of credit during
the authorized period of Section 1112 payments to be eligible for the section 1112
payments. For example, the Borrower may have an outstanding balance for one month, a
zero balance for one month, and then draw down again on the line of credit for a third
month, and SBA would make the payments for the 3 months during which the Borrower
had an outstanding balance. SBA will pay no more than the authorized period of Second
Round Section 1112 Payments, as set forth in Section III.B above, on the same revolving
line of credit, and these payments do not need to be made in consecutive months. The
payments made by SBA may not be used to cover any balloon payments.
In addition, for loans made under the Export Working Capital Program, if a loan matures
during the authorized period of SBA payments and another loan is taken out for the same
purpose, the number of payments that SBA will make on these loans combined will not
exceed the total number of months authorized under Section III.B above for the initial
loan. If a Lender receives more than the authorized number of monthly payments, the
Lender must immediately notify SBA and immediately return the payment.
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c. Compliance with 1502 Reporting by 7(a) Lenders.
SBA reminds 7(a) Lenders that they must continue to comply with existing procedures
regarding 1502 reporting and payment remittance as required by SOP 50 10.
d. Section 1112 Payments for Partially Disbursed 7(a) Loans
A 7(a) term loan will not begin to receive Section 1112 payments until it has been fully
disbursed and moved into a Regular Servicing Status. See paragraph II.A above,
Definition of “Regular Servicing Status”. However, a loan may be partially disbursed and
the Borrower may be required by the Lender to make payments on this partial
disbursement. These payments may consist of interest only or principal and interest based
on the current outstanding balance (“partial disbursement loan payments”).
If the partial disbursement loan payments are past due when the loan becomes eligible to
receive Section 1112 payments, the Lender may request that these past due amounts be
covered by Section 1112 when it submits the Section 1112 monthly report for this loan.
The Lender would include these past due amounts in the total outstanding loan payment
amount that the Lender provides in the Section 1112 monthly report. In addition, the
months for which the Section 1112 payments are made for these past due amounts must be
counted toward the authorized period for the Second Round Section 1112 Payments, as set
forth in Section III.B above. For example, if two months of partial disbursement loan
payments are past due when the loan is first included in the Section 1112 monthly report,
the Lender must include these two months in the number of monthly payments covered by
the total outstanding loan payment amount. Lenders are reminded that, before they
consider continuing to disburse a loan for which the Borrower is past due on partial
disbursement loan payments, they must ensure that the issue of adverse change has been
addressed in accordance with SBA Loan Program Requirements, including SBA
Procedural Notice 5000-20011, Guidance Regarding No Adverse Change Certifications
on 7(a) Loans during the COVID-19 Emergency, effective 3/26/2020.
e. Maximum Number of Section 1112 Payments for Existing SBA Loans that are
Refinanced with a 7(a) Loan
If an existing SBA Microloan, 504 loan, or 7(a) loan has been receiving payments under
Section 1112 of the CARES Act, and that loan is refinanced with a new 7(a) loan, the
maximum amount that SBA will pay on these loans combined shall not exceed the total
number of months authorized under Section III.B above for the initial loan. The Lender
that refinanced the loan must ensure that it submits the Section 1112 monthly report for
the correct number of remaining Section 1112 payments. For example, if SBA has made
Section 1112 payments for two months on an existing 7(a) loan, and that loan is eligible
for only 3 months of Section 1112 payments, and the Borrower refinances that loan with
a new 7(a) loan, the new loan will only be eligible to receive one additional monthly
payment under Section 1112. If more than the combined total of 3 months of payments
are made for the loan, the Lender must immediately notify SBA and immediately return
the excess payment(s). If any excess payments are discovered during a review by OCRM,
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a purchase review, or an audit, SBA will require the Lender to return the excess
payments.
f. Lender Responsibilities When 7(a) Loans are Sold to Another 7(a) Lender
When a 7(a) Lender sells all of its interest in any of its 7(a) loans to another 7(a) Lender
pursuant to 13 CFR 120.432(a), the purchasing lender is responsible for submitting, in
accordance with this Notice, the Section 1112 monthly reports for the correct number of
remaining Section 1112 payments. The selling and purchasing Lenders must also ensure
that, upon SBA’s transfer of the loan account(s) into the purchasing Lender’s portfolio, E-
Tran reflects the purchasing Lender as the Lender of Record. If not, the Lenders must
notify SBA at 7aPortfolioTransfers@sba.gov that E-Tran needs to be updated to reflect
the purchasing Lender as the owner of the loan(s). SBA will then be able to make the
Section 1112 payments to the correct Lender.
IV. Reconciliation of Second Round Section 1112 Payments to 7(a) Lenders
A. Instructions for Lender reconciliation and returned payments
If the Lender determines that any loan payment amount that it submitted through the CARES Act
menu of the 1502 Dashboard for which it received payment is incorrect then the Lender can
adjust the loan payment amount in a subsequent month to account for the difference, provided
that the adjustment does not equate to a monthly loan payment amount that exceeds $9,000. The
subsequent month’s section 1112 loan payment would be increased to cover the amount of the
underpayment or decreased to credit the amount of the overpayment from a previous month.
Lenders must maintain a written explanation of the circumstances justifying the correction in
their loan files, which SBA may request at any time.
If the Lender received an underpayment for the final section 1112 payment due on the loan, then
the Lender may submit an additional request the following month through the CARES Act menu
of the 1502 Dashboard for the additional funds owed the Lender only after providing a written
request to the FTA, Colson Services. SBA understands that occasionally Lenders may not
become aware by the final month that an underpayment was made for any month during the
authorized period of Section 1112 payments. In such cases, the Lender may submit a request for
additional funds to cover an underpayment made for any month of the authorized period of
Section 1112 payments as soon as the Lender becomes aware of such underpayment, subject to
the availability of funds for Section 1112 payments. The written request for the additional
payment may be submitted to the FTA, Colson Services, by email and must include the SBA
loan number, the amount of the underpayment, and a certification by the Lender that the loan is
eligible for an additional Section 1112 payment under SBA Loan Program Requirements,
including this Notice.
If the Lender received an overpayment for the 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. SBA has
determined that it is not cost effective to require Lenders to return overpayments of $10 or less
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and, accordingly, Lenders need not return the funds to SBA if the amount of the overpayment
with respect to a particular loan is $10 or less. In such cases, instead of returning the
overpayment to SBA, the Lender must credit the 7(a) loan for which the overpayment was made
by the amount of the overpayment.
B. SBA Reconciliations/Audits.
SBA, or SBA’s agent, may perform subsequent reconciliations of the payments made under
section 1112. When requested, Lenders must provide loan transcripts for the loans for which
Section 1112 payments were made within 10 business days of the request from SBA or its agent.
One or more reconciliations and/or audits of payments may be performed by SBA at purchase, at
the end of the loan term, and/or during the term of the loan.
C. Adjustments Allowed on Payments to Lenders.
If the reconciliation or audit shows an overpayment, the Lender will pay SBA any amounts due
to SBA as a result of any reconciliation or audit performed, subject to the $10 threshold
described in Section III.A above, and SBA may net the amount due from future payments or
guaranty purchase amounts due to the Lender. If the reconciliation or audit shows an
underpayment, SBA will pay any amount due the Lender as a result of the reconciliation or audit.
D. For new 7(a) loans made beginning on February 1, 2021 and ending on September 30, 2021,
if the SBA guarantee is cancelled after the loan is approved due to character ineligibility,
financial information verification issues, or for any other reason, any payments disbursed to the
Lender prior to such cancellation must be promptly repaid to SBA.
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.
John A. Miller
Acting Associate Administrator
Office of Capital Access
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