That the coronavirus pandemic has damaged small businesses is plain to see, and fortunately small businesses may be eligible for several federal small business relief programs. Those generally come in the form of SBA loans and grants. Many people know about the PPP loan, which is effectively a grant if certain criteria are met, but the SBA is also providing debt relief to small businesses that already have an SBA loan. The criteria for this debt relief depends on a variety of factors, including the number of employees, annual revenue, and other SBA size standards. Here is how the program works, who is eligible, and how to apply.
We are Delancey Street, a business debt settlement and debt relief company based in New York City. We serve business owners in 49 of the 50 states. We’ve settled over $100 million in business debt for over 1,000 businesses. An SBA loan can be one of the debts you’re juggling. It is worth knowing exactly what the SBA relief does and does not do before deciding anything.
Pay Six Months of Principal, Interest and Any Associated Fees
The SBA has announced its debt relief program, one of the several federal coronavirus relief programs available to business owners. The SBA will pay six months of principal, interest and any associated fees for existing SBA 7(a), 504 and Microloans. Loans that were in regular servicing as of March 1, 2020 will have these payments made automatically. The program does not apply to loans under the Paycheck Protection Program.
The SBA says it’s going to make your loan payments for six months if you have a loan under one of their programs. If you have a 7(a), 504 or Microloan and are currently making your loan payments the SBA begins making your payments on the next payment due date. If your loan is deferred the SBA begins making your payments on the next payment due date following the end of the deferment, and keeps making payments for six months. The program covers payments on principal, interest, and associated fees on 7(a), 504 or Microloans disbursed before September 27, 2020.
By now you have probably heard that SBA has already notified all of the lenders for 7(a), 504 and Microloan loans that they are to stop collecting payments from their borrowers. That means that if you have a loan of any of those types, and it is in regular servicing, you have an automatic deferral. There’s no need to notify the lender.
If you don’t have a loan through the Small Business Administration (SBA) yet, you can still apply for an SBA 7(a) Loan, a 504 Loan, or a Microloan and be eligible for the debt relief. Your business must have received the loan before September 27, 2020. In general, businesses must have less than 500 employees to qualify, but private nonprofit organizations and 501(c)(19) veterans organizations also qualify. Some businesses with over 500 employees may still qualify. You can check the SBA’s size standards to make sure you qualify. To check if your business qualifies, or to find a qualified lender, visit the SBA website.
The good news is that if you already had a qualifying loan you are automatically eligible for relief. Your loan automatically goes into deferral, without any action you need to take. If you’re not sure whether or not you qualify, we recommend that you check with your lender directly.
Under the CARES Act, “automatic deferral” means the SBA has to make your payment for you within 30 days of the date your first regular payment is due. The SBA covers your payments for six months. Your loan will keep charging you interest, as scheduled. You will continue to receive your regular 1201 monthly payment notice, but it will show a deferral, and indicate that no payment is due.
You may want to keep paying during the deferment. If you do, SBA applies those payments as it would to the balance on a loan that is not in deferment. Please see your lender if you have questions about your loan. Automatic payments will stop during the six months of deferment. Talk to your lender about restarting them at the end of the six months.
Checklist for Owners
Here is a checklist for owners with SBA loan deferrals.
- First, confirm your loan is a 7(a) or 504 or Microloan and not a PPP loan.
- Then, ensure your loan is in “regular servicing”.
- The next step is to read your 1201 monthly payment notice to confirm that it shows the deferral and that no payment is due.
- If you had automatic payments set up, they should have stopped, so set a reminder to restart them with your lender after six months.
- If you have any doubt about your specific loan, call your lender for clarification.
The program was built as a solution to help small businesses through this uncertain time. A deferral is not forgiveness. The federal relief program covers six months of payments and then the payments kick in again. Interest continues to accrue during the deferral. If you’re already struggling, the best use of the six months is for planning the day the payments restart, not for assuming you’ll be out of trouble.
Negotiate Settlement on Your Existing SBA Loans
If your existing payments don’t work out, and you still can’t make ends meet, we can negotiate settlement on your existing SBA loans, equipment finance, lines of credit and merchant cash advance debt, even if your advances are stacked. Our senior advisors negotiate with your lenders for less than the full balance of your debt. We do not sell you another loan. Our fee is one percentage of your total enrolled debt and is quoted in writing before we start the work.
The first consultation is free and confidential, of course. If we can’t win your case, or there’s a cheaper option, we tell you that on the first call. We are not a law firm; when bankruptcy, such as Subchapter V, is the better path we refer you to a vetted independent attorney.
