As part of the Small Business Administration’s debt relief efforts during the Covid-19 Pandemic, they have also implemented a Debt Relief Program which entails the following key points:
- The SBA will automatically pay the principal, interest, and fees of current 7(a), 504, and microloans for a period of 6 months; and
- The SBA will also automatically pay the principal, interest, and fees of new 7(a), 504 and microloans issued prior to September 27, 2020.
- If your disaster loan was in “regular servicing” status on March 1, 2020, the SBA is providing automatic deferments through December 31, 2020. What this means for borrowers is the following:
- Interest will continue to accrue on the loan
- 1201 monthly payment notices will continue to be mailed out which will reflect the loan is deferred and no payment is due
- The deferment will NOT cancel any established Preauthorized Debit (PAD) or recurring payments on your loan. Borrows that have established a PAD through Pay.gov or an online Bill Pay Service are responsible for canceling these recurring payments. Borrowers that had SBA establish a PAD through Pay.gov will have to contact their SBA servicing office to cancel the PAD.
- Borrowers preferring to continue making regular payment during the deferment period may continue remitting payments during the deferment period. SBA will apply those payments normally as if there was no deferment.
- After this automatic deferment period, borrowers will be required to resume making regular principal and interest payments. Borrowers that cancelled recurring payments will need to reestablish the recurring payment.
Please be aware that the Debt Relief Program does not apply to the Paycheck Protection Program (PPP) loans, nor does it apply to new Economic Injury Disaster Loans (EIDL), or emergency Economic Injury Grants (EEIG).
For federal small business relief programs, you qualify based on the size of your business. Your small business must have 500 or fewer employees. Private nonprofits and 501(c)(19) veteran’s organizations also qualify. It’s possible for some companies with more than 500 employees to qualify if they align with the SBA’s size standards for certain industries. In addition, hospitality and food industry businesses could qualify at each location with fewer than 500 employees even if the overall business employs more than 500 people.
Your business qualifies if the “current economic uncertainty makes the loan necessary to support your ongoing operations,” according to an SBA fact-sheet. Your need for a loan is contingent upon a decision from an SBA-approved lender based on SBA guidelines. But amid this coronavirus crisis, there will not be a separate review from the SBA.
Normally, there are much more stringent requirements and documentation, but the loans offered under the CARES Act are being given under looser guidelines, allowing banks and other lenders to get money to companies quickly so they can cover things like rent and payroll.
There are also individual state and local programs, each of which has its own guidelines. The size varies by state. For instance, in San Francisco the business must have less than $2.5 million in revenue while in Delaware the number is $1.5 million. Some programs are based on the number of employees a business has — one program in New York, for instance, is for businesses with less than 100 employees.
Dwayne J. Briscoe
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