Entrepreneurs are still struggling in 2021 to rebuild their small businesses. Although the Paycheck Protection Program (PPP) has launched an additional round of funding this year, some business owners are still in need of additional capital to address the economic downturn.
Thankfully, the government is addressing financial problems and the Small Business Administration (SBA), is offering additional relief for qualified borrowers who have an active SBA loan in place.
What type of SBA loans qualify for deferment?
There are three types of SBA loans that may qualify for deferment if already funded: 7(a), 504, and Microloans. Here’s a bit about each.
SBA 7(a) loans
SBA 7(a) loans are generally known as the “gold standard” in small business financing because of low rates, long terms, and very low monthly payments. The wide use of funds is also an attractive component allowing borrowers to spend proceeds on a wide range of expenses outlined below:
Working capital
Working capital keeps businesses afloat and humming along; it’s the common measure of your company's liquidity, efficiency, and overall health.
Debt refinancing
You can save up to thousands of dollars per month by refinancing expensive debt. A new loan, like a low rate, long term SBA loan, can make a big difference to your company.
Longer terms
A shorter term loan will always have a higher monthly payment versus a longer term one. SBA loans from banks in the SmartBiz network have 10 - 25 year terms resulting in lower monthly payments.
Other ways proceeds from an SBA 7(a) loan can be used is for commercial real estate purchase or refinance, marketing initiatives, hiring, inventory, and equipment purchases. Be sure to check with your lender to make sure how you plan to use the funds is approved.
The CDC/504 Loan Program
Certified Development Companies (CDCs) are nonprofit corporations that promote economic development within their communities. The SBA authorizes CDCs to provide financing to small businesses with the help of third-party lenders (typically banks) 504 loans. The maximum SBA loan amount for 504 SBA loans is capped at $5 million. Below-market interest rates are fixed for the life of the loan. The SBA sets the maximum interest banks can charge on CDC/504 loans.
The SBA Microloan Program
The Small Business Administration (SBA) Microloan Program provides direct loans and grants to eligible non-profit microlenders so that they may provide micro-level loans, and business based training and technical assistance to start- up, newly established and growing small business concerns.
SBA loan deferment details
As a part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the SBA is authorized to pay 6 months of principal, interest, and any associated fees that borrowers owe for all 7(a), 504, and Microloans reported in regular servicing status (excluding PPP (Paycheck Protection Program) loans).
According to the Economic Aid to Hard-Hit Small Businesses, Non-Profits and Venues Act Economic Aid Act, this debt relief is for loans fully or not fully disbursed prior to September 27, 2020. This does not apply to loans made under the Economic Injury Disaster Loan (EIDL) program.
Eligibility
To be eligible for a second round of debt relief payments, the borrower generally must have an SBA 7(a) loan or 504 loan that is in a regular servicing status.
Borrowers are limited to $9,000 in monthly debt relief payments and are only eligible to receive debt relief payments on one loan. The SBA will make a payment by the 15th day of that month.
What does a deferral mean to borrowers?
If your loan is eligible for deferment, here are the details to review from the SBA.
- Interest will continue to accrue on the loan.
- 1201 monthly payment notices will continue to be mailed out which will reflect the loan is deferred and no payment is due.
- The deferment will NOT cancel any established Preauthorized Debit (PAD) or recurring payments on your loan. Borrowers that have established a PAD through Pay.Gov or an OnLine Bill Pay Service are responsible for canceling these recurring payments.
- Borrowers preferring to continue making regular payments during the deferment period may continue remitting payments during the deferment period. SBA will apply those payments normally as if there was no deferment.
- After this automatic deferment period, borrowers will be required to resume making regular principal and interest payments. Borrowers that cancelled recurring payments will need to reestablish the recurring payment.
2021 payments
Beginning in February 2021, SBA borrowers who previously received six months of debt relief payments will be eligible for three additional months of payments.
Borrowers assigned a NAICS code beginning with 61, 71, 72, 213, 315, 448, 451, 481, 485, 487, 511, 512, 515, 532, or 812 will then be eligible for five supplemental months of debt relief payments immediately following their initial three month period.
Additional information
This SBA document has published the official declaration regarding deferral here: Procedural Notice 1/19/2021
Small business resources
For more information about loans available for small business owners in 2021, visit the SmartBiz Small Business Blog. These articles are a good start:
