SBA Procedural Notice 5000-20064: Additional Guidance on 504 Certifications of No Adverse Change for January, February and March 2021 Debenture Sales during the COVID-19 Emergency and Reminder About Catch-up Plans
Summary
SBA Procedural Notice, Control No. 5000-20064, effective November 24, 2020, to SBA employees and certified development companies, giving additional guidance on 504 certifications of No Adverse Change for the January, February and March 2021 debenture sales during the COVID-19 emergency, with 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. 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.: 5000-20064
Development Companies
EFFECTIVE: November 24, 2020
SUBJECT: Additional Guidance on 504
Certifications of No Adverse Change for January,
February and March 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 January, February and March 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 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, that the COVID-19 Agreement would continue to be available for the debenture sales
scheduled for July, August, and September 2020. SBA announced the continued availability of
the COVID-19 Agreement for the debenture sales scheduled for October, November and
December 2020 in SBA Procedural Notice 5000-20044, effective September 4, 2020. In
addition, SBA 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.
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Must be accompanied by SBA Form 58
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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 January, February and
March 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 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 the Section 1112 payments are not available for any 504 loans funded through
debenture sales held after September 2020. In the event that Congress extends the Section
1112 payments to 504 loans that will be funded through the debenture sales held in January,
February or March 2021, 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. 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. If the Section 1112
payments become available for 504 loans that will be funded in January, February or March
2021, 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
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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
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
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 January, February and March 2021
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
Office of Capital Access
PAGE 3 of 3 EXPIRES: 11-1-21
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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