Many who were holding SBA loans in 2020 saw their interest and principal payments automatically made for six months due to provisions made in the CARES Act. Some new funding has been released for a second version of this program in 2021. But changes have been made by the SBA in February, so we wanted to ensure our readers got the most current and accurate information.
The 2020 Program
The original program was backed by $17B in funds. The new program included guidance on the loan payments made by the SBA in 2020, and the news is good. Not only were those payments made on your behalf not taxable, but the interest and fees paid by the SBA are now deductible!
The SBA programs that were eligible included:
- 7(a) loans (general small business loans up to $5M, and the loan type that is the majority held by the SBA)
- 504 loans (major fixed assets/real estate loans up to $5.5M)
- Microloans ($500-$50,000 small business loans)
The 2021 Program
The new funding is derived from a bill that passed in the final days of 2020 and had promised the same six months of payments by the SBA for all new loans all the way until the end of September 2021. Ostensibly this would be one more incentive for people considering buying a business to make a decision: the government was offering free money to make that leap.
If the loan was fully disbursed on or before September 27, 2020, it was eligible for the original six months under the CARES Act and the previous program. Any loans that were fully disbursed after September 27 would come under the 2021 program.
The 2021 program also noted that those in particular sectors could be eligible for up to an additional five more months of payments, namely:
- Food service
- Arts and Entertainment
- Health Care
However, it seems that over the holidays somebody in the SBA was actually running some numbers and realized that the paltry $3.5M allocated for this second round could not possibly deliver on the promises. So, in mid-February the SBA sent out a procedural notice. As government documents go, it’s surprisingly readable and thankfully short. But in fairly straightforward language we read:
SBA has determined that the $3.5 billion that was appropriated to carry out Section 325 of the Economic Aid Act is insufficient to make the payments for the periods authorized by Section 1112(c)(1) of the CARES Act, as amended by Section 325 of the Economic Aid Act.
In other words: we’d like to give you more money, but we know we won’t be able to. The document goes on to shorten the promised six months of payments to three months for any new loans, and a possible three additional months (instead of the five previously discussed) for those impacted sectors.
The document also lists all the NAICS codes that are eligible for this program. In case you didn’t know, a NAICS code is used by the government for statistical purposes and puts industries into neatly organized codes. 812111 is the code for a barber shop, for example (also one of the codes eligible for the program).
If you get a new SBA loan in one of the categories listed above between February 1 and September 30, 2021, the SBA will make your payments subject to funds. That means you could get a loan by July or August, well before the deadline, and still miss out because the SBA has no more money for this program (unless more funds are allocated for this program before then). So, that means if you’re interested in this “free government money,” you’ll need to move quickly.
To get an SBA loan you don’t have to prove the decline in revenue necessary to qualify for the second round of PPP funding, but you do have to show you have been unable to get credit elsewhere. Ironically, those who weren’t previously eligible for SBA funds may now be eligible because the financing options they once had have disappeared.
Need some bankers who are familiar with the SBA to help you navigate this? We know some great ones. Give us a call and we’ll connect you.