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Changes to Relief from the SBA
As a Pinnacle client, you can depend on us in your time of need. Below is some important information regarding payment relief (not deferral) for SBA 7(a) loans.
As you may already be aware, part of federal government’s second stimulus package included more relief for SBA borrowers. In 2020, many SBA borrowers received six months of automatic payments through the CARES Act. Those same borrowers will receive additional automatic payments in 2021.
A few weeks back, we told you about these extensions to the SBA relief payments for 7(a), 504 and Microloan programs. The SBA has now told us that they're cutting many of these payments short.
In short, the COVID relief bill passed by Congress in December had $3.5 billion set aside for these subsidy payments. Congress knows the funds were not enough to meet all the needs of every SBA borrower and directed the SBA to provide a plan to make the funds available to more borrowers. They decided the most fair way was to shorten the number of months the payments would be available.
These may not be the last changes they make to the program. It's possible that Congress could allocate more funding to cover more months of payments. But that's far from a guarantee. For now, we want to make you aware of how the changes will affect you.
1st round Section 1112 Payments:
- Loans approved on or before Sept. 27, 2020, and fully disbursed on or after Sept. 28, 2020, will receive three months of subsidy payments instead of six.
- Loans approved and fully funded on or before Sept. 27, 2020, will continue to receive full six months' subsidy
2nd round Section 1112 Payments:
- Loans approved between March 27, 2020, and Sept. 27, 2020, are not eligible.
- For loans that were approved before March 27, 2020, the SBA will make two payments instead of three payments capped at $9,000 per month per borrower.
- Certain types of businesses are eligible for an additional three months instead of five months of payments, which will begin once the two months' period has ended. These payments each have a $9,000 cap. Entities eligible for the additional three months of payments fall into the following NAICS codes:
- 61 (Educational Services), 71 (Arts, Entertainment and Recreation), 72 (Accommodation and Food Services), 213 (Support Activities for Mining), 315 (Apparel Manufacturing), 448 (Clothing and Clothing Accessories Stores), 451 (Sporting Good, Hobby, Book and Music Stores), 481 (Air Transportation), 485 (Transit and Ground Passenger Transportation), 487 (Scenic and Sightseeing Transportation), 511 (Publishing Industries), 512 (Motion Picture and Sound Recording Industries), 515 (Broadcasting), 532 (Rental and Leasing Services), or 812 (Personal and Laundry Services).
For new loans approved beginning on Feb. 1, 2021, and ending on Sept. 30, 2021, the SBA will make three payments instead of six payments, subject to availability of funds.
No action is required on your part to accept these payments. They will automatically apply to your loan.
You can only receive relief payments for one SBA loan. If you previously received relief payments related to the CARES Act, you cannot receive additional payments on a new SBA loan, no matter when it was approved and funded.
For Payments Capped at $9,000 Per Month
If your monthly payment is more than $9,000, you will need to pay the difference to Pinnacle Bank as normal. For example, if your regular payment is $10,000 per month, SBA will cover $9,000 of the payment, and you will need to pay the remaining $1,000 to us. If you have auto draft for these payments, it will be in place to pay the difference.
If you are in a catch up plan, SBA will not make your catch up payment for you. They will only make your regular amortized loan payment up to $9,000. Any “catch up” amount due over your amortized loan payment will need to be submitted SBA.
Paycheck Protection Program (PPP) loans are not covered by this relief.
Thank you for your continued trust in Pinnacle. We are grateful for relief programs like these and hope they will help your business in this time of need.