SBA Procedural Notice: Additional Guidance on 504 Certifications of No Adverse Change for July, August and September 2020
Summary
SBA Procedural Notice, Control No. 5000-20027, effective 05/18/2020, to SBA employees and certified development companies, giving additional guidance on 504 certifications of No Adverse Change for the July, August and September 2020 debenture sales during the COVID-19 emergency. It recalls that on March 25, 2020 SBA issued Procedural Notice 5000-20010 for the April, May and June sales, as modified by Procedural Notice 5000-20020, issued April 16, 2020. It cites the certifications required under 13 CFR 120.892.
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SBA Procedural Notice
TO: All SBA Employees and Certified CONTROL NO.: 5000-20027
Development Companies
SUBJECT: Additional Guidance on 504 EFFECTIVE: 05/18/2020
Certifications of No Adverse Change for
July, August and September 2020 Debenture
Sales during the COVID-19 Emergency
On March 13, 2020, President Trump declared the ongoing Coronavirus Disease 2019 (COVID-
19) pandemic of sufficient severity and magnitude to warrant an emergency declaration for all
States, Territories, and the District of Columbia. In response to this emergency declaration, on
March 25, 2020, SBA issued Procedural Notice 5000-20010 (March Notice) to provide guidance
to Certified Development Companies (CDCs) with respect to the certifications of No Adverse
Change required to proceed with the debenture sales scheduled for April, May and June, 2020.
(The procedural requirements in the March Notice were modified by paragraph C.2 of SBA
Procedural Notice 5000-20020, issued April 16, 2020.) The purpose of this Notice is to provide
guidance to CDCs with respect to the certifications of No Adverse Change that are required to
proceed with the debenture sales scheduled for July, August, and September 2020.
Under 13 CFR 120.892, the following certifications related to No Adverse Change are required
before a 504 loan closing:
• The Borrower (and Operating Company if Borrower is an Eligible Passive Company (EPC))
must certify to the CDC that there has been no unremedied substantial adverse change in its
financial condition or its ability to repay the Project financing since the date of application.
This certification is made by the Borrower (and Operating Company) in SBA Form 2289.
• The Interim Lender must certify to the CDC that it has no knowledge of any unremedied
substantial adverse change in the condition of the small business since the application to the
Interim Lender and that Borrower is current on its payments to Interim Lender and not
otherwise in default on the Interim Loan. This certification is made by the Interim Lender in
SBA Form 2288.
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Must be accompanied by SBA Form 58
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• The CDC must opine and certify, before the 504 loan closing, that to the best of its
knowledge there has been no unremedied substantial adverse change in the financial
condition of Borrower or Operating Company since its submission of the loan application to
SBA. This certification is made by the CDC in SBA Form 2101.
For the April, May and June debenture sales, CDCs are required under the March Notice (as
modified by Procedural Notice 5000-20020) to consider whether 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. If so, the CDC, the Interim Lender, the Third Party Lender, and the
Borrower (and Operating Company, if applicable) may continue with the 504 debenture sale,
provided that the parties execute the COVID-19 Substantial Adverse Change Remedy
Certification and Agreement (COVID-19 Agreement) attached to the March Notice. Under the
COVID-19 Agreement, the CDC and the Third Party Lender agree to grant a deferment of at
least 90 days and up to six months on both the 504 and Third-Party Loans immediately after the
April, May and June debenture sales. After the deferment period, SBA will begin to make the
regular monthly loan payment on the 504 loan for six months, as authorized under section 1112
of the Coronavirus Aid, Relief and Economic Security Act (the CARES Act), enacted on March
27, 2020.
Due to the continuing adverse economic effects caused by the pandemic, SBA continues to be
concerned about the financial ability of Borrowers to repay the Project financing. In deciding
how to proceed with the July, August and September 2020 debenture sales, SBA has considered
the availability of the payments for the 504 loan provided under section 1112 of the CARES Act
(referred to as “section 1112 payments”), but continues to be concerned that many, if not most of
the Borrowers will not have the immediate financial ability to timely pay the amounts due on the
Third Party Loan during the 6-month period of section 1112 payments. It would not assist the
Borrower to begin to immediately receive the section 1112 payments on the 504 loan only to
have the Borrower default on the Third-Party Loan during the 6-month period of section 1112
payments. Thus, for 504 loans for which the COVID-19 emergency has created an adverse
change in the Borrower’s ability to repay the Project financing, SBA has decided to continue
requiring an immediate 90-day deferment on both the 504 and Third Party Loans after the
debenture sales, with the section 1112 payments to begin after the deferment period. As stated in
SBA Procedural Notice 5000-20010, the unexpected and sudden change in national economic
conditions caused by the COVID-19 emergency, which is beyond the Borrower’s control,
presents a unique circumstance and one which SBA hopes will be only a temporary challenge for
all SBA Borrowers, including approved 504 applicants who have not yet closed on their 504
loan. SBA hopes that the combined 9-month period of deferments and section 1112 payments
will assist Borrowers in improving their cash flow so that they will be able to make their
payments on the 504 and Third Party Loans after the 9-month period.
Accordingly, for the July, August and September 2020 debenture sales, CDCs may proceed with
the debenture sale under the conditions and requirements set forth below. These conditions and
requirements apply to any 504 loan funded through the debenture sales scheduled for July,
August, and September, 2020, regardless of the date that the Authorization was issued.
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Must be accompanied by SBA Form 58
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. In making this determination, the CDC must
consider whether it is likely that the Borrower will have the ability, during the 6-month
period that SBA will be making 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. 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.
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 attached 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 will begin after the deferment period granted under the COVID-19
Agreement (Rev May 2020) and these payments will be made in accordance with SBA
Procedural Notices 5000-20020 and 5000-20023. 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
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.
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Must be accompanied by SBA Form 58
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 July, August, and September debenture sales, the parties must use the COVID-19
Agreement (Rev May 2020) that is attached to this Notice, 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
Attachment
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SBA Form 1353.3 (4-93) MS Word Edition; previous editions obsolete
Must be accompanied by SBA Form 58
COVID-19 SUBSTANTIAL ADVERSE CHANGE REMEDY CERTIFICATION AND
AGREEMENT (Rev. May 2020)
In connection with SBA 504 Loan Number ______________, the Certified Development
Company (CDC), Interim Lender, Third Party Lender, Borrower, and Operating Company (if
applicable) listed below certify and agree as follows:
1. The parties have signed SBA form certifications and agreements in connection with this 504
loan closing, including certifications regarding whether there has been an unremedied
substantial adverse change in the financial condition of the Borrower (and Operating
Company, if applicable). See SBA Forms 2288 (Interim Lender Certification), SBA Form
2287 (Third Party Lender Agreement), SBA Form 2289 (Borrower and Operating Company
Certification), and SBA Form 2101 (CDC Certification). This document amends those
certifications and agreements.
2. The CDC has concluded that the national emergency arising from the ongoing Coronavirus
Disease 2019 (COVID-19) pandemic is the immediate and direct cause of a substantial
adverse change in the Borrower’s (and/or Operating Company’s, if applicable) ability to
repay the Project financing, and remedial measures are necessary to address the substantial
adverse change.
3. Immediately following the debenture sale, CDC agrees to grant the Borrower (and Operating
Company, if applicable) a deferment on the 504 loan, including all principal and interest, for
90 days after the debenture sale to assist the Borrower (and Operating Company, if
applicable) in improving its cash flow.
4. Immediately following the debenture sale, the Third-Party Lender agrees to grant the
Borrower (and Operating Company, if applicable) a deferment on the Third Party Loan,
including all principal and interest, for 90 days after the debenture sale to assist the Borrower
(and Operating Company, if applicable) in improving its cash flow. The Third Party Lender
agrees that the Borrower’s failure to make any payment under the Third Party Loan during
the period of deferment shall not constitute a default (or Event of Default) under the Third
Party Loan documents or applicable law and the Third Party Lender agrees not to exercise
any rights or remedies that may otherwise be available as a result of the failure to make any
such payments during the deferment period. Notwithstanding the foregoing, all other terms
and conditions under the Third-Party Loan documents and the Third Party Lender Agreement
shall remain in full force and effect.
5. The CDC, Interim Lender (if applicable) and Third Party Lender agree to make a good faith
effort to assist the Borrower (and Operating Company, if applicable) with additional remedial
measures including, but not limited to, assisting the Borrower (and Operating Company, if
applicable) 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.
6. Borrower (and Operating Company, if applicable) agree to use its best efforts to seek out,
apply for, and obtain available sources of financial assistance, as necessary to continue to
operate.
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Must be accompanied by SBA Form 58
7. Borrower (and Operating Company, if applicable) has not filed a bankruptcy petition or any
other insolvency proceeding as of the date of this agreement.
8. Interim Lender certifies that the Borrower (and Operating Company, if applicable) are current
on their payments to the Interim Lender and not otherwise in default on the Interim Loan.
9. This document may be signed in counterparts.
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SBA Form 1353.3 (4-93) MS Word Edition; previous editions obsolete
Must be accompanied by SBA Form 58
INTERIM LENDER
_______________________________
By: ______________________________ ______________________________
Title: Date
THIRD PARTY LENDER
__________________________________
By:________________________________ ______________________________
Title: Date:
BORROWER: OPERATING COMPANY:
___________________________________ ________________________________
By: ______________________________ By: ____________________________
Title: Title:
Date: Date:
CERTIFIED DEVELOPMENT COMPANY
_____________________________________
By:___________________________________
Title:
Date:
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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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