In addition to the Paycheck Protection Program (“PPP”) loans available to small businesses, the CARES Act appropriated an additional $17 billion to subsidize certain small business loans. This act applies to loans made under:

  1. Section 7(a) of the Small Business Act,
  2. Title V of the Small Business Investment Act, or
  3. Section 7(m) of the Small Business Act.

What Will It Do For Me?

In short, the SBA will pay the principal, interest, and any fees that come due for six months. The payments will begin for the first payment due after March 27, 2020. This is great news for anyone with an existing SBA loan. However, the SBA also pay six months of principal, interest, and fees for new SBA loans made between March 27, 2020, and September 27, 2020.

Deferment

Many borrowers and lenders entered into deferral agreements before the enactment of the CARES Act. The payments by the SBA apply even if your loan is on deferment. If you are under a deferment agreement, the SBA payments will commence with the next payment due after the deferment period.

Relief

The hope is that this program will provide enough time to keep small business loans out of liquidation. In the specific instance of a 7(a) loan which was not sold on the secondary market, a borrower could potentially obtain debt service relief for a year. The lender could grant the borrower a six-month deferral and the SBA would make six months of payments, resulting in a total of one year of relief for the borrower. Additionally, the Act waives the maximum loan maturity limits for deferred loans.

These provisions will provide needed relief for those who have existing SBA loans. In particular, this could be critical relief for restaurateurs in states who have been forced to close. But, for people who are not risk adverse, the six month payment of principal, interest, and fees are available to new SBA loans made between March 27, 2020 and September 27, 2020. This provision may very well be an interesting opportunity for someone who was already planning to open or purchase a new business and who otherwise qualify for this loan. Six months of subsidized payments can move the needle on the economics making a transaction that much more viable.

The attorneys at Preovolos Lewin, ALC are well versed in the provisions of the CARE Act and are able to assist you with questions or even with the application process. Please call us at (619) 696-0520.