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Guidance on Establishing Maturities of New Microloans Eligible to Receive Payments under Section 1112 of the CARES Act

Summary

This SBA Procedural Notice, Control No. 5000-20030, effective June 15, 2020, tells Microloan Program Intermediaries how to set the maturity of new microloans closed through September 27, 2020, the period in which Section 1112 of the CARES Act authorizes SBA to pay up to six months of principal, interest and fees. Intermediaries are prohibited from considering the availability of Section 1112 payments in setting the repayment schedule or term, and may not intentionally shorten terms so those payments cover the principal. They may not underwrite any new microloan through September 27, 2020 with a maturity of six months or less. An Intermediary that does not comply may lose eligibility for future Technical Assistance grant awards or reimbursements.

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                 SBA Procedural Notice

TO: All SBA Employees and Microloan                                                 CONTROL NO.: 5000-20030
Intermediary Lenders
                                                                                    EFFECTIVE: June 15, 2020
SUBJECT: Guidance on Establishing Maturities of
New Microloans Eligible to Receive Payments
under Section 1112 of the CARES Act


Section 1112 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
authorizes SBA to make the principal, interest, and associated fee payments that are owed on a
covered loan for a 6-month period if the loan is in regular servicing status (section 1112
payments). Under section 1112(c)(1)(C) of the CARES, Act, SBA is authorized to make the
section 1112 payments for new microloans that are made beginning on March 27, 2020 and
through September 27, 2020. The payments were authorized to provide relief to small business
borrowers adversely affected by COVID-19.

The purpose of this Notice is to address the standards that SBA expects Microloan Program
Intermediary lenders (Intermediaries) to apply in establishing the maturity of new loans closed
through September 27, 2020.

Intermediaries must underwrite all microloans, including the term of the loan, only after
determining that the borrower has good prospects for repayment from the business operations
without consideration of the SBA Section 1112 payments.

Intermediaries are prohibited from considering the availability of Section 1112 payments in
establishing the repayment schedule or the loan term of any microloan. The repayment schedule
and the loan term must be established as if no section 1112 payments would be made.
Intermediaries may not intentionally shorten loan terms so that Section 1112 payments pay all or
a substantial portion of the loan principal. SBA expects Intermediaries to establish the loan
maturity for each microloan consistent with the Intermediary’s microloans approved prior to the
COVID-19 emergency. If SBA determines upon later review of the loans that an Intermediary
did not comply with this requirement, the Intermediary may not be eligible for future Technical
Assistance (TA) grant awards or grant reimbursements.

In addition, Intermediaries are prohibited from underwriting any new microloan through
September 27, 2020 with a maturity of six months or less. SBA will be making the section 1112
payments on new loans for six months and, if the new loan has a maturity of six months or less,

PAGE 1 of 2                                                                                 EXPIRES: 6-1-21
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
SBA would not be providing just short-term debt relief to the borrower, but would effectively be
providing a grant to the borrower, which is not the purpose of section 1112.

Lenders must continue to comply with existing procedures regarding MPERS reporting as
required by Procedural Notice 5000-20015.

Questions concerning this Notice may be directed to the Lender Relations Specialist in the local
SBA Field Office. Local SBA Field Offices can be found at https://www.sba.gov/tools/local-
assistance/districtoffices.


Dianna L. Seaborn
Director
Office of Financial Assistance




PAGE 2 of 2                                                                                 EXPIRES: 6-1-21
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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