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The SBA Debt Relief Program

While much of the recent press has been focused on the SBA’s Paycheck Protection Program, borrowers should not forget about other programs, such as the SBA’s Debt Relief program.

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While much of the recent press has been focused on the SBA’s Paycheck Protection Program, borrowers should not forget about other programs, such as the SBA’s Debt Relief program.

While much of the recent press has been focused on the Small Business Administration’s (SBA) Paycheck Protection Program (PPP), borrowers should not forget about other programs, such as the SBA’s Debt Relief program. This program was enacted under section 1112 of the Coronavirus Aid, Relief and Economic Security Act (the “CARES” Act). Under this program the SBA will pay six months of principal, interest and associated fees for current 7(a), 504 and Microloans in regular servicing status as well as new loans disbursed prior to September 27, 2020. This relief is not available for PPP or Economic Injury Disaster Loans (EIDL). Borrowers do not need to apply for this assistance, it will be applied automatically. However, borrowers should make sure to check their accounts to make sure they have received this relief.

For loans that are not currently deferred, the SBA will begin (and may have already begun) making payments and will make a total of six monthly payments. If a loan is in deferment, the SBA will begin making payments after the deferment period ends. The SBA has instructed 7(a), 504 and Microloan lenders to cease collecting payments from borrowers during the six-month period. If a borrower’s payment was collected after March 27, 2020, they have the option to receive a refund or to apply the payment as a further reduction of principal.

Additional Debt Relief

Another aspect of this program provides relief for borrowers with current SBA serviced Disaster (Home and Business) Loans. Disaster loans in regular status on March 1, 2020, are receiving automatic deferments through December 31, 2020. Under this portion of the program:

  • Interest will continue to accrue.
  • Monthly payment notices will show that no payment is due, but interest is accruing.
  • The deferment will not cancel previously arranged recurring payments. Borrowers will have to make those arrangements.
  • Borrowers may continue making regular payments if they choose.
  • After December 31, 2020, borrowers must resume regular payments.

Other Specific Elements

Other key program elements include:

  • Regular status generally should not include any loan that is more than 120 days past due.
  • Associated fees include CSA, CDC and the 7(a) extraordinary servicing fee.
  • SBA payments will not exceed the outstanding balance of principal, interest and associated fees.
  • For any loans for which a borrower is required to make catch-up payments, such payments are still required and no payments made by the SBA can be used to cover such payments.

Make sure to contact your lender if you have any questions.

 

COVID-19 Business Resources

Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statutes, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.

Disclaimer: The contents of this resource are for general informational purposes only. While every effort has been made to ensure its accuracy, the information is provided “as is” and no representations are made that the content is error-free. We have no obligation to update any content, comments or other information for retroactive or prospective interpretations or guidance provided by regulators, financial institutions or others. The information is not intended to constitute legal advice or replace the advice of a qualified professional. There are areas of the CARES Act where additional clarification from the Treasury Department and the SBA is needed. Your judgment and interpretation of the act may be needed. Users should consult with their legal counsel and representatives of the lending institution regarding the proper completion of their application and supporting documentation.

 

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