SBA debt relief

SBA debt relief
SBA debt relief

SBA debt relief

The SBA is offering debt relief to its existing borrowers whose businesses have been affected by COVID-19.

Initial Debt Relief Assistance

As part of the CARES Act, the SBA is authorized to pay principal, interest, and any associated fees owed by current 7(a), (504), and microloan borrowers for a six-month period, if applicable. the report being in regular service status (excluding Payment Protection Program loans). This debt relief for borrowers was originally contingent on the loan being fully disbursed by September 27, 2020, and does not apply to loans made under the Economic Injury Disaster Loan program.

These original provisions were amended on December 27, 2020, through the Most Impacted Small Businesses, Nonprofits, and Live Entertainment Act (the Financial Assistance Act). The Financial Aid Act modified the eligibility criteria for assistance to include all 7(a), 504, and microloans approved through September 27, 2020, even if not fully disbursed. All other provisions regarding initial debt reduction remain the same. 

Borrowers do not need to apply for this aid, as it will be awarded automatically based on the following:

  • For non-deferred loans, SBA will make monthly payments based on the date the next loan payment is due, for a total amount equal to no more than six monthly payments.
  • For loans currently deferred, SBA will begin making monthly payments on the date the first payment is due after the deferment period has ended, for a total amount equal to no more than six monthly payments.

The SBA has notified 7(a), (504), and microloan lenders that it will make payments due on these loans from borrowers. Lenders are required to periodically report unpaid balances to the SBA once the loan has been fully disbursed. Payments collected after March 27, 2020, may be applied to the outstanding loan balance or returned to the borrower, at the borrower’s discretion.

Extra help for debt relief

The Financial Relief Act also authorized additional debt relief payments to 7(a), 504, and microloan borrowers beyond the six-month period prescribed in the CARES Act. The level of assistance varies based on loan approval date and will begin on or after February 1, 2021. Please contact your lender if you have questions about the availability of this assistance for your SBA loan.

The initiatives described above are limited to the level of available funding provided by Congress.

Disaster Loans for Homes and Businesses

Existing SBA disaster loans approved prior to 2020 in regular service status as of March 1, 2020, received an automatic deferment of principal and interest payments through December 31, 2020. This initial deferment period it was later extended to March 31, 2021. These borrowers will automatically be granted an additional 12-month deferment of principal and interest payments. Borrowers will resume their regular payment schedule with payment immediately prior to March 31, 2022, unless the borrower voluntarily continues payments while in deferment. It is important to note that interest will continue to accrue on the outstanding balance of the loan for the duration of the deferment.

What does an “automatic deferment” mean for borrowers?

  • Interest on the loan will continue to accrue.
  • The automatic deferral will be reflected in the March 2021 monthly payment notice ( SBA Form 1201, English only).
  • Borrowers will not receive monthly payment notices (SBA Form 1201) during the deferment period.
  • Borrowers will be contacted through the SBA automatic dialing system using the phone number associated with the SBA loan approximately one month before the automatic deferment ends. This correspondence will serve as a reminder to borrowers of their next installment due date in lieu of the monthly payment notice (SBA Form 1201).
  • Borrowers are strongly encouraged to create an SBA Capital Access Financial System (CAFS) account to monitor the status of their loan. The SBA provides instructions to borrowers on how to enroll in CAFS.
  • The deferment will not stop any established PAD or recurring loan payments. Borrowers with a PAD established by the SBA will need to contact their SBA service center to stop recurring payments during the deferment period. Borrowers who have established a PAD through Pay.Gov or any other bill payment service are responsible for completing recurring payments during the deferment period.
  • Borrowers who choose to continue their regular payments during the deferment period will be able to do so. SBA will apply for those payments normally as if there were no deferments.
  • After the automatic deferment period ends, borrowers will be required to reinstate principal and interest payments.  
  • For SBA disaster loans for homes and businesses covered by the above procedural notices authorizing automatic deferments, borrowers will be required to resume regular principal and interest payments after the automatic deferment period ends on June 31. March 2022.
  • For SBA disaster loans for homes and businesses approved in 2020, borrowers will be required to resume regular principal and interest payments 12 months after the next payment is due, in accordance with the terms of the authorization of the loan.
  • If requested, SBA will evaluate the borrower’s circumstances on a case-by-case basis to determine the nature and extent of additional assistance that may be appropriate for each situation.

Casey Harward

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