On February 16, 2021, SBA issued Procedural Notice 5000-20095 detailing reduced debt relief benefits to 7(a), 504, and Microloan Programs due to insufficiency of funds. Congress appropriated $3.5 billion to carry out extended CARES Act Section 1112 payment subsidies under Section 325 of the Economic Aid to Hard Hit Small Businesses, Nonprofits, and Venues Act (“Economic Aid Act”) enacted December 27, 2020. SBA has determined that the $3.5 billion is insufficient to make all payments for the periods originally authorized. Consequently, as authorized by the law, SBA has developed a plan to proportionally reduce the number of months of payment subsidies provided for each category of loans (“Adjustment Plan”). The Adjustment Plan is effective immediately.
- Newly Eligible First Round Loans –
For 7(a) and 504 loans approved on or before September 27, 2020 and fully disbursed on or after September 28, 2020, SBA will make Section 1112 payments for a 3-month period (instead of a 6-month period). If the loan was approved and fully disbursed on or before September 27, 2020, SBA will continue to make the Section 112 payments for a 6-month period as authorized under the original CARES Act.
- Second Round Section 1112 Payments for 504 and 7(a) loans (except loans made under the Community Advantage Pilot Program) approved before March 27, 2020 –
SBA will make Section 1112 payments for a 2-month period (instead of a 3-month period). The monthly payment remains capped at $9,000. This 2-month period of Section 1112 payments may cover amounts that are past due at the time that SBA makes the February Section 1112 payment, subject to the monthly payment limit of $9,000. For borrowers in hard-hit NAICS Codes beginning with 61, 71, 72, 213, 315, 448, 451, 481, 485, 487, 511, 512, 515, 532, or 812 (according to the records of SBA), SBA will make the Section 1112 payments for an additional 3-month period (instead of an additional 5-month period) subject to the monthly payment limit of $9,000.
- Second Round Section 1112 Payments for Community Advantage Loans and Microloans approved before March 27, 2020 –
SBA will make Section 1112 payments for a 5-month period (instead of an 8-month period). For Community Advantage loans, for the February Section 1112 payments, SBA will make a maximum of 2 months which may be applied to past due amounts (not to exceed 120 days). If additional funds are needed to cover past due amounts, the remaining 3 months of payments in March may be applied to cover additional past due amounts. All payments made are subject to the monthly payment limit of $9,000.
- New Loans Approved Beginning on February 1, 2021 and Ending on September 30, 2021 –
For a new 7(a) loan, 504 loan, or Microloan approved during the period beginning on February 1, 2021 and ending on September 30, 2021, SBA will make the Section 1112 payments for a 3- month period instead of a 6-month period, subject to the availability of funds.
- No Second Round 1112 Payments for Loans Approved Between March 27, 2020 and September 27, 2020 –
A loan that was approved during the period beginning on March 27, 2020 and ending on September 27, 2020 is eligible for the first round of Section 1112 payments either for a 6-month period if the loan was fully disbursed on or before September 27, 2020 or for a 3-month period if the loan was fully disbursed after September 27, 2020. Under the Adjustment Plan, no other Section 1112 payments will be made for these loans.
Please refer to the Flowchart below for eligible payment relief to be provided under the adjusted plan.
Section 1112 Payments Flow Chart
