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A lot of attention over the last two weeks has been on the
forgivable Paycheck Protection Program (“PPP”) loans established under
the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”),
and rightfully so, as the establishment of the PPP within the Small
Business Administration (“SBA”) came with the appropriation of $349
billion.
However, for small
businesses with existing SBA loans, there was an additional key provision
that will prove to be very beneficial as well as we all try to weather
this storm over the coming months. We have begun to field questions
from clients inquiring about a recent notification from their SBA lenders
or the SBA itself.
Well, here is the
breakdown: Section 1112 of the CARES Act appropriates $17 billion to the
SBA to be used as 100% subsidies for existing small business loans.
What
does that mean? The SBA will pay all
principal, interest, and fees on existing SBA loans for six (6) months pursuant
to 7(a), Community Advantage, 504, and Microloan programs. The
SBA will pay the lenders directly, beginning no later than thirty (30)
days following the first scheduled payment after enactment of the CARES
Act.
What
if my business makes a payment during this time? If a borrower under one of these SBA loan programs makes
its regularly scheduled payments, the lender will have to notify the
borrower that such installment is subject to the SBA subsidy and inquire
as to whether the borrower desires to go ahead and apply such payment as
a prepayment or have the payment returned to the borrower.
Is
this a deferment, or will it extend the term of my loan? No. This is separate and different from the
deferments that may have been offered by SBA lenders for temporary relief
under SBA guidance released prior to the enactment of the CARES
Act. However, if a borrower entered into a deferral arrangement with
its SBA lender, they will still get subsidy relief under the CARES
Act. If the loan is currently in deferment, then the SBA will begin
making the above-mentioned “subsidized” payments after the deferment
period.
What
if my business has an application in underwriting for a new SBA loan? Borrowers who obtain new loans under the
above-specified SBA programs within six (6) months after the enactment of
the CARES Act are also entitled to have the SBA make a full six (6)
months of loan payments. Please note that these SBA subsidies do not apply
to PPP loans established under the CARES Act.
Will
receiving this subsidy prevent my business from obtaining a PPP loan? No. Existing SBA loan borrowers that will
receive the SBA subsidy can also obtain a PPP loan. The SBA subsidy
will not affect your eligibility to obtain a PPP loan.
What
does my business need to do in order to receive the subsidy? Nothing. This subsidy relief program is intended to
occur automatically between the SBA and your SBA lender. It is the
SBA lender’s responsibility to communicate to the SBA the proper amounts
to be paid under the subsidies. However, if your small business
currently has an existing SBA loan or will be obtaining a new SBA loan in
the near future, then you should certainly contact your SBA lender to
make sure proper credit is recorded for the SBA subsidies paid by the SBA
directly to the SBA lender.
This should be
another very welcomed relief for the next six months.
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