December 8, 2021

By Joseph Coleman
Contributing Editor, Coleman Report

Newly released Section 1112 Debt Relief Program guidance for the 7(a) and 504 Programs became effective December 6, 2021 giving SBA officials and lenders clarity as the program comes to a close.

SBA Procedural Notice: 5000-823852 EFFECTIVE: December 6, 2021

New Guidance for Section 1112 Debt Relief Program as the program winds down
I. Availability of Funds
II. 7(a) Lenders Must Return Payments Made on Ineligible Loans
III. No Loan Increases will be Approved for Certain Loans on or after October 1, 2021

I. Availability of Funds

  1. 7(a) loans:
    Funds will be available to make the Section 1112 payments for 7(a) loans that were approved beginning on February 1, 2021 and ending on or before September 23, 2021. Funds for Section 1112 payments on 7(a) loans were fully exhausted during the day on September 23, 2021. If a loan was approved on September 23, 2021 after the funds were exhausted, SBA will notify the Lender that no Section 1112 payments are available for that loan. In addition, if a Lender submits a request for Section 1112 payments for a loan that was approved after the funds were depleted, SBA will notify the Lender that funds are not available for SBA to make the Section 1112 payments. For the loans for which funds are available, SBA will begin to make the payments for the 3-month period that is authorized for these loans only after the loan is fully disbursed and the loan is otherwise eligible to receive the payments.
  2. 504 loans:
    a. Regular 504 and 504 Loans Involving Debt Refinancing with Expansion: Funds will be available to make the Section 1112 payments for regular 504 loans and 504 loans involving debt refinancing with expansion that were approved on or before September 7, 2021. SBA will begin to make the payments for the 3-month period that is authorized for these loans only after the loan is fully disbursed and the loan is otherwise eligible to receive the payments. With the funds for new regular 504 loans or 504 loans involving debt refinancing with expansion exhausted on September 7, 2021, no new regular 504 loans or 504 loans involving debt refinancing with expansion could be approved beginning on September 8, 2021 through September 30, 2021.

    b. 504 Loans Involving Debt Refinancing without Expansion: Funds will be available to make the Section 1112 payments for 504 loans involving debt refinancing without expansion that were approved on or before September 30, 2021. SBA will begin to make the payments for the 3-month period that is authorized for these loans only after the loan is fully disbursed and the loan is otherwise eligible to receive the payments.

B. Newly Eligible First Round Loans
For a 7(a) or a 504 loan approved on or before September 27, 2020 that was not fully disbursed on or before September 27, 2020, and that was, or will be, fully disbursed on or after September 28, 2020 (referred to as “Newly Eligible First Round Loans” in Procedural Notice 5000-20079), funds will be available to make the Section 1112 payments for the 3-month period that is authorized for these loans and SBA will begin to make the payments only after the loan is fully disbursed and the loan is otherwise eligible to receive the payments. For loans that were approved and fully disbursed on or before September 27, 2020, funds will continue to be available to make the Section 1112 payments for the 6-month period authorized under the original CARES Act. SBA emphasizes that for all loans eligible for Section 1112 payments, SBA will begin to make the payments only when the loan is fully disbursed and the loan is otherwise eligible to receive the payments.

C. Second Round Section 1112 Payments for 504 and 7(a) Loans Approved Before March 27, 2020
For any 504 or 7(a) loan that has not yet received any or all of the Second Round Section 1112 payments described in Section III.B. of SBA Procedural Notice 5000-20079, funds will be available to make the Second Round Section 1112 payments for the authorized number of months when the loan becomes eligible to receive these payments.

D. Revolving Lines of Credit
For 7(a) loans involving revolving lines of credit, funds will continue to be available to make the First Round and/or Second Round Section 1112 payments for the authorized number of months.

II. 7(a) Lenders Must Return Payments Made on Ineligible Loans
SBA reminds 7(a) Lenders that, if they submit a request for Section 1112 payments and received such payments on a loan that was not yet eligible to receive the payment(s) because the loan had not been fully disbursed or for any other reason, the Lender must immediately return the payment to SBA via wire to the 7(a) Collection Account of SBA’s Fiscal Transfer Agent with a reference to Section 1112 and the affected SBA Loan Number.

III. No Loan Increases will be Approved for Certain Loans on or after October 1, 2021
For any 504 loan or 7(a) loan that was approved on or before September 30, 2021, SBA will not approve any request for an increase to the 504 loan or 7(a) loan on or after October 1, 2021. In addition, for a 504 Project that was approved beginning on December 27, 2020 and ending on September 30, 2021, SBA will not approve any request for an increase to the Third Party Loan on or after October 1, 2021.