New Covid-19 Relief Under Economic Aid Act

The latest Covid Relief bill includes a number of changes to SBA programs. All provisions of the new law are subject to Congressional appropriation and full SBA implementation. Additional details will be sent out as the provisions are rolled out by SBA. This post gives a brief outline of the areas that are affected…

SBA 504 Temporary Fee Eliminations
For new SBA 504 loan approvals from December 27, 2020 through September 30, 2021, two 504 fees are being waived: the Third Party Participation Fee (0.5%) and the CDC Processing Fee (1.5%). This will give new 504 borrowers a financing cost savings.

CARES Act Section 1112 Tax Implications
The new law changes how CARES Act Section 1112 Payment Forgiveness will be treated for tax purposes. These payments will not be treated as taxable income to the borrower for Federal tax purposes. Any tax deduction arising from these payment subsidies will accrue to the borrower as if the payment were made by the borrower. Small business borrowers should consult their tax professional for specific guidance.

CARES Act Section 1112 Additional Debt Relief
Congress appropriated $3.5 billion to extend payment relief for new and existing SBA borrowers (including 504, 7a, Community Advantage, and Microloan programs). The amounts and dates are a bit complex. Here is a brief summary based on information we have today:

▪ All borrowers with qualifying SBA loans approved prior to the CARES Act (March 27, 2020) will receive an additional three months of payment subsidies, starting in February, 2021. 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 payment subsidies, also capped at $9,000 per borrower per month. These borrowers include those with SBA microloans or 7(a) Community Advantage loans, and borrowers with any 7(a) or 504 loan 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.
▪ New loans approved between February 1 and September 30, 2021 will receive six months of payment subsidies, also capped at $9,000 per month. Loans approved between September 27, 2020 and February 1, 2021 will not receive any payment subsidies under the extended CARES Act Section 1112 authority.

SBA 504 Debt Refinance Loan Programs

▪ Under 504 Debt Refinance Without Expansion, a number of provisions are being eliminated to make the program accessible to a greater number of small businesses, including the cap for the amount of refinance projects FDDC can approve.
▪ Under 504 Debt Refinance With Expansion the amount eligible for refinance is increased to 100% of expansion costs.
▪ Under a temporary one time cash-out subordination, a Third Party Lender can refinance their portion of a 504 project to re-leverage their loan to a total 90% loan-to-value when combined with the outstanding balance on the existing 504 loan. This will be in effect for a 1-year period. Proceeds can be used to support business operating expenses.

SBA 504 Express Loan Program
This would be a temporary program until September 30, 2023. All Certified Development Companies which are under the Accredited Lenders Program (ALP) would have delegated authority to approve, authorize, close and service 504 loans of $500,000 or less. First District Development Company is an ALP lender and this could mean improved loan processing times for smaller 504 loans.

Extension of Paycheck Protection Program
Community Financial Institutions (CFIs) can begin submitting new First Draw PPP loan origination requests on January 11, 2021. CFIs can begin submitting Second Draw PPP loan applications on January 13, 2021. Shortly thereafter, all other lending institutions will be notified when they are able to submit loan origination requests. Please refer to these documents for more details: PPP Overview of First Draw Loans and PPP Overview of Second Draw Loans.

FDDC will send updates on all of these new provisions as information becomes available.