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SBA Adjusts Guidance on Extended 504 Loan Payment Subsidies Due to Funding Shortfall

Feb 2021

The Small Business Administration (SBA) has released updated guidance on implementing extended payment subsidies of principal, interest and fees for 504 loans under Section 1112 of the CARES Act as amended by Section 325 of the Economic Aid Act enacted in December due to insufficiency of funds.

The SBA has determined the $3.5 billion appropriated by Congress is insufficient to make all payments for the periods originally authorized. Consequently, as authorized by the law, the SBA has developed a plan to proportionally reduce the number of months of payment subsidies provided for each category of loans (“Adjustment Plan”). The Adjustment Plan is effective immediately.

Newly Eligible First Round 504 Loans

For 504 loans approved on or before Sept. 27, 2020, and fully disbursed on or after Sept. 28, 2020, the SBA will make Section 1112 payments for a 3-month period (instead of a 6-month period). If the loan was approved and fully disbursed on or before Sept. 27, 2020, the SBA will continue to make the Section 1112 payments for a 6-month period as authorized under the original CARES Act.

Second Round Payments for 504 Loans Approved Before March 27, 2020

The SBA will make Section 1112 payments for a 2-month period (instead of a 3-month period). The monthly payment remains capped at $9,000. This 2-month period of Section 1112 payments may cover amounts that are past due at the time the SBA makes the February Section 1112 payment, subject to the monthly payment limit of $9,000. For borrowers in hard-hit NAICS Codes beginning with 61, 71, 72, 213, 315, 448, 451, 481, 485, 487, 511, 512, 515, 532 or 812 (according to the records of SBA), the SBA will make the Section 1112 payments for an additional 3-month period (instead of an additional 5-month period) subject to the monthly payment limit of $9,000.

New Loans Approved Beginning on Feb. 1, 2021, and Ending on Sept. 30, 2021

For a new 504 loan approved during the period beginning on Feb. 1, 2021, and ending on Sept. 30, 2021, the SBA will make the Section 1112 payments for a 3-month period instead of a 6-month period, subject to the availability of funds.

No Second Round Payments for Loans Approved Between March 27, 2020, and Sept. 27, 2020

Loans approved during the period beginning on March 27, 2020, and ending on Sept. 27, 2020, are eligible for the first round of Section 1112 payments either for a 6-month period if the loan was fully disbursed on or before Sept. 27, 2020, or for a 3-month period if the loan was fully disbursed after Sept. 27, 2020. Under the Adjustment Plan, no other Section 1112 payments will be made for these loans.

See SBA Procedural Notice 5000-20095 for complete details.

NOTE: The Central Servicing Agent (CSA) will resume regular debits in April 2021 instead of May 2021 to align with the adjusted number of Section 1112 payments. Debits will be made for loans that have either finished receiving their second round of CARES Act Section 1112 payments, or are ineligible to receive any additional CARES Act Sec 1112 payments. Loans still receiving CARES Act Sec 1112 payments will not be debited until after they have received all CARES Act payments.

The SBA 504 Loan Program provides up to 90% financing at below-market, fixed interest rates and long amortization terms up to 25 years for the purchase of major fixed assets, such as owner-occupied commercial real estate, renovations, new construction, energy efficient “green” initiatives and/or fixed heavy duty machinery and equipment, as well as the refinance of commercial mortgage and other business debt with or without a cash-out option.

504 loans are paired with private-sector commercial loans and provide up to $5 million of aggregate SBA eligibility on standard 504 projects; up to $5.5 million per 504 energy efficient green project not exceed $16.5 million in the aggregate; and up to $5.5 million per eligible small manufacturing project with no limit on total SBA dollars available. These are SBA 2nd mortgage loan portions only; there is no limit on overall project dollar size.

For more information about SBA 504 loans in Alabama, Florida or South Georgia, contact a Florida First Capital Loan Officer or email us at info@ffcfc.com. Phone: 850.681.3601 or toll-free at 888.320.5504.