United States: SBA Part Thirty-Five: SBA 7(a), 504, Or Micro-loan Programs Under The Economic Aid Act

The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act), a subpart of the larger Consolidated Appropriations Act, 2021, was signed into law on Dec. 27, 2020. In addition to providing changes to the original Paycheck Protection Program (PPP), now called a "First Draw" loan, and adding a second round of PPP funding, referred to as a "Second Draw" loan, the Economic Aid Act made several very noteworthy modifications to other Small Business Administration (SBA) loans, as discussed below. Please also review our earlier bulletins that contain background information on the impacts of the PPP and the SBA Disaster Loan Programs under the Economic Aid Act: SBA Part Thirty-One, SBA Part Thirty-Two, SBA Part Thirty-Three, and SBA Part Thirty-Four.

The Economic Aid Act helps small businesses utilizing SBA lending programs other than the PPP and the SBA Disaster Loan Programs, including the SBA 7(a), 504, and micro-loan programs initially established under the Coronavirus Aid, Relief and Economic Security Act (CARES Act). Please also review SBA Part Three that contains background information on the SBA 7(a), 504, or Micro-loan Programs under the CARES Act.

Extension of Existing SBA 7(a), 504, or Micro-loan Programs

The Economic Aid Act has extended the debt relief program established under the CARES Act, whereby the SBA was directed to use funds to make principal and interest (P&I) payments on qualifying small business loans guaranteed by the SBA under the 7(a), 504, and micro-loan programs for a period of six months from the next payment due date. However, all borrowers with qualifying loans approved by the SBA prior to the CARES Act will receive an additional three months of P&I, starting in February 2021 (these loans previously received automatic payment assistance from the SBA). Going forward, those payments will be capped at $9,000 per borrower per month. After the three-month period described above, borrowers considered to be underserved—namely the smallest or hardest-hit by the pandemic—will receive an additional five months of P&I payments, also capped at $9,000 per borrower per month. These include:

• Borrowers with SBA micro-loans or 7(a) Community Advantage loans.
• Borrowers with any 7(a) or 504 loans in the hardest-hit sectors, as measured by the severity of sector-wide job losses since the start of the pandemic. They include food service and accommodation; arts, entertainment, and recreation; education; and laundry and personal care services.

SBA payments of P&I on the first six months of newly approved loans will resume for all loans approved between Feb. 1 and Sept. 30, 2021, also capped at $9,000 per borrower per month.

Additional Modifications to SBA 7(a), 504, or Micro-loan Programs

The Economic Aid Act further modifies covered loans as follows:

• Increases a lender's guaranty to 90 percent of the loan amount on 7(a) loans, including for Community Advantage loans, until Oct. 1, 2021.
• Increased the Express Loan amount from $350,000 to $1 million on Jan. 1, 2021, through Sept. 30, 2021, at which point on Oct. 1, 2021, it will be reduced to $500,000.
• The Express Loan guaranty amount for loans of $350,000 or less is temporarily increased from 50 percent to 75 percent, and for loans above $350,000, the guarantee remains at 50 percent. On Oct. 1, 2021, the guarantee reverts to 50 percent for all Express Loans.

• Enhances the 504 refinancing rules in order to create reciprocity for refinancing between 504 and 7(a) programs.
• Grants authority through Sept. 30, 2023, for the SBA to establish a 504 Express Loan Program for the most experienced and successful 504 lenders to expedite 504 loans of less than $500,000.

• Enhances the micro-loan program to increase access to micro capital and technical assistance under the program for businesses impacted by the COVID-19 pandemic.
• Temporarily increases the amount of time that borrowers can repay their loans from six to eight years.
• Temporarily increases the outstanding aggregate amount each intermediary may borrow from $6 million to $10 million to expand their capacity to deploy more capital to small businesses.
• Allows intermediaries to access more technical assistance funding if they serve rural areas.
• Maximizes flexibility and reduces red tape for intermediaries by temporarily waiving the limitations for the technical assistance grants and the 50 percent limitation on pre-loan technical assistance.
• Provides $50 million in additional funding for Micro-loan Technical Assistance funding for lenders and $7 million to leverage about $64 million more in micro-loans to businesses.

• SBA payments should be made on any loan approved before the applicable deadline, and debt relief payments should be made only once the loan is fully disbursed.
• SBA may establish a minimum loan maturity period for each loan product covered under this section to prevent program abuse.
• Any business or applicant may only receive P&I payments for only one loan approved after the CARES Act enactment.
• SBA is required to place program information on its website, conduct outreach to all borrowers, report monthly to Congress on program spending, and educate lenders, borrowers, SBA district offices, and resources partners about the program.

While many changes were made in the Economic Aid Act to clarify existing SBA debt relief programs established under the CARES Act, further guidance may be issued.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.