COVID-19 Relief Bill Has Important Changes to SBA Acquisition Lending Program

The $900 billion COVID-19 relief bill seems destined to become law, although, at this writing, President Trump is threatening to veto it, demanding that stimulus checks to individuals be substantially increased and questioning a variety of matters he deemed unrelated to COVID-19 relief included in the bill.

The bill passed overwhelming, theoretically with veto-proof margins, but changes are certainly a possibility.  Since the bill was attached to the year-end spending bill, there are many unrelated provisions in the 5,593-page bill passed Monday.  [If you want to see what a 5,593 page bill looks like, click here.]

There are important developments in the SBA 7(a) loan program frequently used for business acquisitions.

The following changes are included:

  • The amount of the SBA guarantee on loans approved (but not necessarily funded) from February 1, 2021 through September 30, 2021, will increase from 75% to 90%. In addition, the guarantee fees for these loans will be waived.
  • For SBA 7(a) loans approved (but not necessarily funded) from February 1, 2021 through September 30, 2021, the SBA will make the first six monthly payments of principal and interest on behalf of buyers, subject to a $9,000 per month cap. With larger monthly payments, the borrower would be responsible for the amount of the payment that exceeds $9,000.
  • For loans made after the expiration of the original provision in the Cares Act, but before February 1, 2021, the SBA will make six months payments of principal and interest, plus an additional three months, all subject to the $9,000 per month cap.
  • The 2020 Cares Act provided six months  payments for existing and new SBA loans made through September 27, 2020.  For existing SBA loans for which borrowers had six months payments made under the CARES Act, the SBA will make an additional three monthly payments, subject to the $9,000- monthly payment cap.
  • For loans in certain industries that have been heavily impacted (not including landscape-relate businesses) receive an additional five months of payments for a total of eight.

We expect these chamnges tio be a positive for for SBA-backed mergers and acquisitions in 2021.

Payroll Protection Program

There will also be a new round of Payroll Protection Program loans made available.  However, under this round, borrowers will only be eligible if they have experienced a 25% reduction in revenues.

For all Payroll Protection Program loans, expenditures made with funds that have been forgiven pursuant to the CARES ACT and the new bill will be tax-deductible after all.

This information is based in the most recent available information, based on the bill passed on Monday, December 20.  There may be changes since the President has not yet signed the bill.  In addition, no regulations have yet been published.  There can and likely will be changes.