Guidance on Establishing Maturities of New 7(a) Loans Eligible to Receive Payments (Control No. 5000-20093)

Summary

This SBA Procedural Notice, Control No. 5000-20093, effective February 12, 2021, addresses how 7(a) Lenders set the maturity of new 7(a) loans approved from February 1, 2021 through September 30, 2021. Section 325 of the Economic Aid Act extends the Section 1112 debt relief to these loans, and subject to the availability of funds SBA will pay principal, interest and fees owed on a covered loan for up to 6 months after full disbursement. The number of months is subject to adjustment, and SBA will tell lenders in a later notice if it changes. The notice does not apply to Paycheck Protection Program loans, which the CARES Act excludes from Section 1112 payments.

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Full text

                             SBA Procedural Notice

TO: All SBA Employees and 7(a) Lenders                                              CONTROL NO.: 5000-20093

SUBJECT: Guidance on Establishing Maturities of                                     EFFECTIVE: February 12, 2021
New 7(a) Loans Eligible to Receive Payments
under Section 1112 of the CARES Act on or after
February 1, 2021


Section 325 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act
(Economic Aid Act), Pub. L. 116-260, extends the debt relief available under Section 1112 of the
Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to new loans approved
beginning on or after February 1, 2021 and ending on September 30, 2021. Subject to the
availability of funds, SBA will make the principal, interest, and associated fee payments that are
owed on a covered loan for up to a 6-month period, beginning after full disbursement, if the loan
is in regular servicing status (Section 1112 payments). The number of months covered by the
Section 1112 payments are subject to adjustment based on the availability of funds, and SBA
will notify Lenders in a subsequent Notice if the number of months is adjusted.

The purpose of this Notice is to address the standards that SBA expects 7(a) Lenders to apply in
establishing the maturity of new 7(a) loans approved beginning on February 1, 2021 and through
September 30, 2021. All 7(a) loan delivery methods (including SBA Express, Export Express,
EWCP, Community Advantage Pilot, and Express Bridge Loan (EBL) Pilot) are covered by this
Notice. (This Notice does not apply to Paycheck Protection Program Loans made under section
1102 of the CARES Act because the CARES Act excludes these loans from eligibility for
section 1112 payments.)

Lenders must underwrite all 7(a) loans, including the term of the loan, in accordance with SBA’s
Loan Program Requirements (as defined in 13 CFR § 120.10). Lenders are required to use
prudent lending practices in underwriting each loan and are required to establish appropriate
repayment schedules and loan maturities based on the Borrower’s ability to repay, the use of the
loan proceeds, and the useful life of the assets being financed.

For each new 7(a) loan approved beginning on February 1, 2021 and ending on September 30,
2021, the repayment schedule and the loan term must be established in accordance with SBA
Loan Program Requirements. Lenders may not intentionally shorten loan maturities so that
Section 1112 payments pay all or a substantial portion of the loan. SBA expects Lenders to
establish the repayment schedule and the loan maturity for new loans in the same manner as the
Lender’s similarly-sized, SBA-guaranteed loans approved prior to the COVID-19 emergency,
but Lenders may consider the availability of Section 1112 payments as part of its comprehensive

PAGE 1 of 2                                                                                 EXPIRES: 2-1-22
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
review to determine the ability of the Borrower to repay over the entire period of maturity of the
loan. If SBA determines upon later review of the loan that a Lender did not comply with SBA
Loan Program Requirements in establishing the loan’s maturity, SBA may deny liability on its
guarantee under 13 CFR 120.524 or otherwise take action against the Lender.

To ensure that SBA will not, in effect, be providing a grant to the borrower, Lenders are
prohibited from underwriting any new 7(a) Loan between February 1, 2021 and September 30,
2021 with a maturity that equals the number of months for which the loan is authorized to
receive Section 1112 payments. This restriction is consistent with SBA Procedural Notice 5000-
20079, Section III.G.2.b, where SBA stated that section 1112 payments may not be used to cover
balloon payments on a revolving line of credit.

SBA reminds all Lenders that, for all new 7(a) loans approved beginning on February 1, 2021
and ending on September 30, 2021, if the SBA guarantee is cancelled after the loan is made 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.
See SBA Procedural Notice 5000-20079, Section IV.D.

In addition, SBA reminds Lenders that, for any 7(a) loan for which SBA is making section 1112
payments, Lenders must continue to comply with existing procedures regarding 1502 reporting
and payment remittance as required by SOP 50 10. See SBA Procedural Notice 5000-20079,
Section III.G.2.c.

Questions
Questions concerning this Notice may be directed to the Lender Relations Specialist in the local
SBA Field Office.




Dianna L. Seaborn
Director
Office of Financial Assistance




PAGE 2 of 2                                                                                 EXPIRES: 2-1-22
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

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