SBA Procedural Notice: Implementation of Section 1112 of the CARES Act, Subsidy for Certain Loan Payments, for the 7(a) and 504 Loan Programs (Control No. 5000-20020)
Summary
This SBA Procedural Notice, Control No. 5000-20020, effective 4/16/2020, sets out how SBA implements Section 1112 of the CARES Act for 7(a) and 504 loans, with the Microloan Program covered in Notice 5000-20015. SBA will pay the principal, interest and associated fees that borrowers owe on a covered loan in regular servicing status to 7(a) Lenders and Certified Development Companies for a 6-month period. A covered loan is one SBA guarantees under section 7(a) of the Small Business Act, including Community Advantage loans, or under the 504 program; it excludes Paycheck Protection Program loans. A loan reaches regular servicing status once it has closed and the final disbursement has been made.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
Full text
SBA Procedural Notice
TO: All SBA Employees, 7(a) Lenders and CONTROL NO.: 5000-20020
Certified Development Companies
SUBJECT: Implementation of Section 1112 of the EFFECTIVE: 4/16/2020
CARES Act, Subsidy for Certain Loan
Payments, for the 7(a) and 504 Loan
Programs
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the CARES Act)
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. Under section 1112 of the CARES Act, SBA will provide debt
relief to borrowers in the 7(a), 504, and Microloan Programs. The purpose of this Notice is to
address the implementation of Section 1112 for the 7(a) and 504 Loan Programs. SBA addressed
the implementation of section 1112 for the Microloan Program in a separate notice. See SBA
Procedural Notice 5000-20015, effective 04/08/2020.
In accordance with section 1112(c), SBA will pay the principal, interest, and any “associated
fees” that Borrowers owe on a “covered loan” in a “regular servicing status” to 7(a) Lenders and
Certified Development Companies (CDCs) for a 6-month period. SBA will make these
payments in accordance with the criteria and procedures described below.
A. Definitions:
1. A “covered loan” means a loan 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 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).
PAGE 1 of 8 EXPIRES: 4/1/2021
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
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 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 CDC.
4. “Associated fees” means the fees paid by the Borrower on a monthly basis including:
a. For 504, the annual SBA guarantee paid on a monthly basis by the
Borrower, the CSA fee, and the CDC servicing fee.
b. For 7(a), the extraordinary servicing fee authorized by 13 CFR 120.221(b).
B. Implementation of the Six-Month Period of Payments. SBA will implement the six-month
period of payments as follows:
1. For a covered loan made before March 27, 2020 and not on deferment, SBA will
make the loan payments for the 6-month period beginning with the next payment due
on the covered loan.
a. For the first loan payment due on a covered loan made before March 27,
2020, SBA will make the payments as follows:
i. For 504 loans, the first such payment was due on April 1, 2020,
and SBA will make these payments by May 1, 2020 to the Central
Servicing Agent (CSA) based on information maintained in the
PAGE 2 of 8 EXPIRES: 4/1/2021
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
CSA E-Tran system. SBA will make all section 1112 payments to
the CSA except for SBA-purchased debentures, and the CSA will
make no ACH debits to the Borrower’s accounts;
ii. For 7(a) loans, the payment due date varies with each loan, and
SBA will make the first monthly payment for these loans directly
to the 7(a) Lenders on or before April 30, 2020 based on the
information provided by the Lenders under paragraph B.2 below
for each loan through the CARES Act menu of the 1502 Dashboard
on the Fiscal Transfer Agent’s (FTA) 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 available on
the FTA website. For the first monthly payment, Lenders may
begin to submit this information on April 16, 2020 but must
provide it no later than April 22, 2020;
iii. If the Lender receives a loan payment from a Borrower to cover
this first monthly 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.
b. For each subsequent month, 7(a) Lenders must submit the information
required under paragraph B.2 below by the 10th day of each month or the
next business day, and SBA will make that month’s payment by the 25th day
of each month. For the 504 Loan Program, SBA will make the payments for
each subsequent month by the last business day of the month based on
information maintained in the CSA E-Tran system.
2. For 7(a) loans for which SBA has not purchased the guarantee, Lenders must submit
the information described in a. through d. 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. For 7(a) loans for which SBA
has purchased the guarantee and are serviced by the Lenders, SBA will issue guidance
on the information that Lenders must submit to SBA in a later notice.
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;
PAGE 3 of 8 EXPIRES: 4/1/2021
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
c. the ACH credit instructions for making the payment directly to the Lenders
(SBA will not make the payments to any Lender Service Providers). (SBA
will provide Lenders with more ACH payment information on the CCD+
Addenda String format in another notice but, even though SBA will be
providing this information later, Lenders MUST provide the ACH credit
instructions for making the payment no later than the 22nd day of April for
the first monthly payment, and no later than the 10th day of the month or the
next business day for all subsequent payments); and
d. a certification that the loan is not in liquidation status, or should not 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.
3. For a covered loan made before March 27, 2020 and on deferment, SBA will make
the loan payments for the 6-month period beginning with the next payment due on the
covered loan after the deferment period. This provision applies to loans that are on
both full or partial deferments. For each 7(a) loan on deferment, Lenders must
provide the information required under paragraph B.2 above by the 10th day of the
month or the next business day. When the period of deferment ends, SBA will make
the payment for the 7(a) loan by the 25th day of each month. After the deferment
ends for a 504 loan, SBA will begin to make the monthly loan payments to the CSA
by the last business day of the month based on the information maintained in the CSA
E-Tran system. Further information on the procedures relating to deferments is
provided in paragraph C below.
4. For a covered loan made beginning on March 27, 2020 and through September 27,
2020, SBA will make the loan payments for the 6-month period beginning with the
first payment due on the covered loan. A Lender may grant the Borrower an
immediate deferment on these new loans (in accordance with the applicable SOP
provisions) in which case the 6-month period of SBA payments will begin after the
deferment ends. For each 7(a) loan, the Lenders must submit the information required
under paragraph B.2 above by the 10th of each month or the next business day, and
SBA will make that month’s payment by the 25th of each month. For the 504 Loan
Program, SBA will make the monthly loan payments to the CSA by the last business
day of the month based on the information maintained in the CSA E-Tran system.
5. For a covered loan for which the Borrower makes loan payments less frequently than
monthly (i.e., 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 6. For loans with semi-annual payments, SBA will make
one payment to cover the full amount due for the next semi-annual payment. For
loans with 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
PAGE 4 of 8 EXPIRES: 4/1/2021
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
payment. 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.
6. For revolving lines of credit with outstanding balances, SBA will make the loan
payments for the 6-month period in accordance with the payment terms stated in the
loan authorization. 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 6-month period of SBA payments and another loan is taken
out for the same purpose, the maximum amount that SBA will pay on these loans
combined is a total of 6 months of payments. If a Lender receives more than the 6
months of payments, the Lender must immediately notify SBA and immediately
return the payment;
7. 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.
8. For any loan that is scheduled to be prepaid, the last payment that SBA will make
under section 1112 will be the monthly loan payment due prior to the date of
prepayment.
9. If a Lender receives any regular loan payment due from a Borrower, in whole or in
part, during the 6-month 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.
10. 7(a) Lenders must continue to comply with existing procedures regarding 1502
reporting and payment remittance as required by SOP 50 10.
11. 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 six-month
period of SBA payments, and 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.
C. Loans on Deferment.
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 6-month period of SBA payments, and Lenders must inform Borrowers that
it is their choice to either continue the deferment and begin receiving the SBA
payments for 6 months after the period of deferment ends OR end the deferment early
PAGE 5 of 8 EXPIRES: 4/1/2021
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
to begin receiving the SBA payments. Once the 6-month period of payments begins,
the period must be continuous and may not be interrupted by deferment.
2. 504 Loans.
a. Deferments Granted Prior to the Debenture Sales held on April 15, 2020.
For any covered 504 loan that was granted a deferment prior the debenture
sales held on April 15, 2020, the Borrower may voluntarily decide to end the
approved period of deferment early to begin the 6-month period of SBA
payments, and Lenders must inform Borrowers that it is their choice to either
continue the deferment and begin receiving the SBA payments for 6 months
after the period of deferment ends OR end the deferment early to begin
receiving the SBA payments. Once the 6-month period of payments begins,
the period must be continuous and may not be interrupted by deferment.
b. Deferments Granted in Accordance with Procedural Notice 5000-20010 for
504 Loans Funded through the Debenture Sales Held on April 15, 2020.
For a 504 loan that was funded through the April debenture sales and
granted a deferment pursuant to Procedural Notice 5000-20010, “504
Certifications of No Adverse Change for April, May and June, 2020
Debenture Sales during the COVID-19 Emergency”, effective 03/25/2020,
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 6-month period of SBA 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 6-month period of SBA
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 6-month 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 6-month period of SBA payments.
c. No Adverse Change Determination for 504 Loans to be Funded through
May and June Debenture Sales.
Under Procedural Notice 5000-20010, CDCs are required to consider the following for the May
and June debenture sales for 504 loans where the Authorization was issued prior to March 1,
2020:
PAGE 6 of 8 EXPIRES: 4/1/2021
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
“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 504
loan 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 for any
other reason), and must document and retain its determination in its loan file.
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 504 loan, 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 CDC, the Interim Lender, the Third Party Lender,
and the Borrower (and Operating Company, if applicable) execute the attached
COVID-19 Substantial Adverse Change Remedy Certification and Agreement
(COVID-19 Agreement), in addition to SBA Forms 2101, 2287, 2288 and 2289.”
Note that the COVID-19 Agreement referenced in paragraph 2 above is attached to Procedural
Notice 5000-20010.
Procedural Notice 5000-20010 was issued prior to the enactment of the CARES Act. With the
availability of the section 1112 payments, Lenders should already be considering as part of their
No Adverse Change determination for the upcoming debenture sales whether Borrowers will
have the ability to make the payments owed on the Third Party Loan during the 6-month period
that SBA will be making the section 1112 payments. To make this clear, SBA is hereby revising
paragraphs 1) and 2) of the Procedural Notice 5000-20010 to state:
“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 for any other reason), and must document
and retain its determination in its loan file.
PAGE 7 of 8 EXPIRES: 4/1/2021
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
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) may continue with
the 504 debenture sale, provided that the CDC, the Interim Lender, the Third Party
Lender, and the Borrower (and Operating Company, if applicable) execute the
attached COVID-19 Substantial Adverse Change Remedy Certification and
Agreement (COVID-19 Agreement), in addition to SBA Forms 2101, 2287, 2288 and
2289.”
D. Waiver of Statutory Limits on Maximum Loan Maturities.
In accordance with 1112(d)(2) of the CARES Act, 7(a) Lenders are authorized to extend the
loan maturities beyond the applicable statutory limits where Lenders provide a deferral and
extend the maturity of the loan during the 1-year period following March 27, 2020.
Questions
Questions on this Notice may be directed to the Lender Service Specialists 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 8 of 8 EXPIRES: 4/1/2021
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
File and source
- File
- 2020-04_SBA-Procedural-Notice-5000-20020-updated-4.17.2020.pdf
- Size
- 110,492 bytes
- SHA-256
- f9d2c2de505a7b03f2b71512b5f8e3104652b61b4395e1abd1a672f69c199db1
- Original
- www.sba.gov