Best Practices: Recent Changes to Section 1112 Payments

The Economic Aid to Hard Hit Small Businesses, Nonprofits and Venues Act (the Economic Aid Act) contained provisions for SBA to cover up to six months of loan payments for certain 7(a) borrowers. When the Economic Aid Act was enacted, it was anticipated that the funds allocated to cover such payments may not be sufficient. Accordingly, the Administrator was given the authority to proportionally reduce the number of months of loan payments that borrowers would have covered. 

SBA Procedural Notice 5000-20095 clarified adjustments that the Administrator will need to make due to insufficiency of funds. Effective as of February 16, 2021, the following changes are in effect:

Newly Eligible First Round Loans. For newly eligible loans, SBA will make three (3) months of payments. 

These loans include 7(a) and 504 loans approved on or before September 27, 2020 that were fully disbursed on or after September 28, 2020. 

Second Round Loans (except Community Advantage). For all non-Community Advantage second round loans, SBA will make two (2) months of payments.

In addition to these payments, for non-Community Advantage second round loans assigned a North American Industry Classification System code beginning with 61, 71, 72, 213, 315, 448, 451, 481, 485, 487, 511, 512, 515, 532, or 812, SBA will make three (3) additional months of payments. 

Second round loans include loans that were approved before March 27, 2020.

Second Round Community Advantage Loans and Microloans. For second round Community Advantage Loans and Microloans, SBA will make five (5) months of payments. 

Second round loans include loans that were approved before March 27, 2020.

Loans Approved between February 1, 2021 and September 30, 2021. For newly approved loans, SBA will make three (3) months of payments, subject to availability of funds.

Loans that will not receive Second Round Payments. Loans that were approved between March 27, 2020 and September 27, 2020 were previously eligible for six (6) months payments under the CARES Act if the loans were disbursed on or before September 27, 2020. If these loans were fully disbursed after September 27, 2020, they are eligible for three (3) months as described above under Newly Eligible First Round Loans. None of these loans will be eligible for second round payments.   All payments made are subject to the monthly payment limit of $9,000.

For questions regarding underwriting concerns under the Economic Aid Act and the CARES Act, contact the attorneys at Starfield & Smith at 215-542-7070.