Best Practices: Unraveling the New Payment Subsidy Guidance in the Economic Aid Act

Section 1112 of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020, provided payment relief to small businesses in the form of a payment subsidy from the U.S. Small Business Administration (the “SBA”) equal to six (6) months of payments on certain SBA loans.  The recently enacted Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (the “Economic Aid Act”), which was enacted on December 27, 2020 provides additional payment relief to small businesses with SBA guaranteed loans.  Given the fact that only limited funds were made available by Congress to fund these subsidized payments, certain Borrowers were prioritized to receive additional payment support in Section 325 of the Economic Aid Act.  SBA further clarified its requirements for these payment subsidies in Procedural Notice 5000-20079 released January 19, 2021.  A summary of the various Borrowers and their eligibility for additional payment subsidies follows: 

• Borrowers with a loan that was approved by SBA on or prior to March 27, 2020, and is in regular servicing status, is eligible to receive three (3) additional months of subsidized payments, capped at $9,000 per month, beginning with the next payment due after February 1, 2021 (“Section 325 Payments”).
• Borrowers with a loan that was approved by SBA and funded in full between March 27, 2020 and September 27, 2020, may not qualify for Section 325 Payments unless SBA determines that there are available funds to grant additional payment relief for these Borrowers.
• Borrowers with a loan that was approved by the SBA between March 27,2020 and September 27, 2020, and funded after September 27, 2020, are now eligible to receive subsidized payments for six (6) months pursuant to Section 1112 of the CARES Act (“Newly Eligible Section 1112 Payments”). It is important to note that, Newly Eligible Section 1112 Payments are not subject to the cap of $9,000 per month.
• Borrowers that previously received Section 1112 payments for loans approved by the SBA between March 27, 2020 and September 27, 2020 are not eligible to receive Section 325 payments on these loans, or on new loans to the same Borrower approved on or after February 1, 2021. This one subsidized loan per Borrower limitation does not apply to Borrower’s affiliates.
• Borrowers with a loan that was approved by the SBA between September 28, 2020 and January 31, 2021, do not qualify to receive any Section 1112 or Section 325 Payments.
• Borrowers with a loan approved between February 1, 2021 and September 30, 2021 may be eligible for subsidized payments for six (6) months, as long as funds are available.
• Certain Borrowers that are eligible to receive Section 325 Payments may qualify to receive an additional five (5) months of Section 325 Payments, in addition to the initial three (3) months of subsidized payments. Industry types assigned a NAICS code beginning with 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), are eligible for the additional five (5) Section 325 Payments.

Obviously, given the myriad SBA Borrowers that need pandemic relief, and the limited funds available, Congress has prioritized the Borrowers that will receive preference for additional payment subsidy.  Although it may appear to be somewhat complex upon first reading as to which Borrowers are eligible for payment subsidy, a careful reading of the SBA guidance will make it clear which Borrowers are, and which Borrowers are not, eligible for additional subsidized payments, and in what amounts.

For more information regarding SBA loan payment subsidies under the CARES Act and the Economic Aid Act, contact Ethan at 267.470.1186.