SBA Subsidy Of Existing SBA Loans Under The CARES Act

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) to “provide emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic.” The CARES Act includes funding in the amount of $17 billion to be used by the SBA for payment of a borrower’s loan obligations on certain SBA loans that were incurred prior to the passage of the CARES Act or were incurred within six (6) months after the enactment of the CARES Act. The SBA loans eligible for this benefit (“Covered Loans”) are loans under Title V of the Small Business Investment Act of 1958 such as the so-called 504 loans, loans made by an intermediary to a small business concern using loans or grants under Section 7(m) of the Small Business Act, and loans guaranteed by the SBA under Section 7(a) of the Small Business Act, including Community Advantage Pilot Program loans. However, loans made under the Paycheck Protection Program established by the CARES Act are specifically excluded from the definition of, and are not, Covered Loans. Economic Impact Disaster Loans under Section 7(b) of the Small Business Act are also excluded from the list of Covered Loans and are not eligible for this benefit.

Under this SBA loan subsidy Section of the CARES Act, the SBA shall pay principal, interest, and any associated fees on a Covered Loan for a period of six (6) months beginning with the next payment due on the Covered Loan. Note that a borrower may get a payment deferral on a Covered Loan from its lender in which case the SBA will make payments for the six (6) month period beginning with the first payment due after the deferral period. If the Covered Loan is incurred within the six (6) month period after enactment of the CARES Act, the payments made will begin on the first payment date for such Covered Loan.

It is not clear how a borrower with a Covered Loan can apply for this subsidy benefit from the SBA.  It is likely that the SBA or the Department of the Treasury will issue guidance to lenders and borrowers of Covered Loans in the near future. At this point, it would be wise for a borrower with an existing SBA loan to ask its lender if its loan is a “Covered Loan” and that the borrower is interested in this SBA subsidy program established under the CARES Act. Dvorak Law Group will continue to monitor this situation for any guidance on how clients can take advantage of these subsidy provisions of the CARES Act.

The Banking and Finance attorneys at Dvorak Law Group have the knowledge and experience to efficiently assist our clients with financing needs. Please contact Dvorak Law Group for specific questions and recommendations regarding how SBA loans may assist your business.

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