Small Business Debt Relief Program Available for Certain Small Business Loans

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Included in the Federal Government’s efforts to address the financial impact COVID-19 has had on small businesses exists the Small Business Debt Relief Program.  As part of the CARES Act enacted on March 27, 2020, $17 billion was allocated to the U.S. Small Business Administration to provide immediate debt relief to borrowers of all current 7(a) loans, 504 loans, and Microloans.  The program also provides debt relief to would be borrowers whose loans are issued by September 27, 2020.  For those unfamiliar with the above mentioned loans, a brief description of each is as follows:

  • 7(a) Loan Program – As the most utilized loan offered by the SBA, this small business loan can provide up to $5 million for borrowers.  7(a) loans are partially guaranteed by the SBA, helping to increase the participation and loan approval of lenders.  Some of features of this loan program include increased flexibility in what the funding can be used for, lower interest rates, longer repayment terms, and a variety of loan types and lines of credit.

  • 504 Loan Program – This program offers loans of up to $5.5 million to small businesses.  These loans are generally long-term, provided at a fixed rate, and can be used to obtain fixed assets that will aid in further development of the business.

  • Microloan Program – Under this program, small businesses can receive loans of up to $50,000.  These loans are provided by SBA designated intermediary lenders who can also provide borrowers with management and technical assistance, in addition to loan administration.  Funding can be used for startup and expansion activities that include working capital, supply purchases, and equipment.

Under the Small Business Debt Relief Program, the SBA will be covering (6) months of loan payments including all principal, interest, and associated fees.  Borrowers will not have to apply for this assistance as it will be provided automatically in the following manner:

  • Current loans not in deferment status and new loans issued prior to September 27, 2020 will have (6) months of payments covered beginning with the next payment due. With the program enacted on March 27, 2020, current borrowers may have already begun seeing payments made.

  • Current loans in deferment status will see (6) months of payments made beginning with the payment due following the end of the deferment period.

Additionally, the SBA will automatically defer Disaster Loan payments through December 31, 2020.  During this time, loans will still accrue interest, however, borrowers will not be expected to make payments again until January 1, 2021.  It is also important to note that the Small Business Debt Relief Program does not apply to loans issued under the Paycheck Protection Program (PPP) or the Economic Injury Disaster Loan Program (EIDL). 

With many small businesses still in need of funding, but finding difficulty in obtaining it through the PPP and EIDL programs, many are exploring the use of SBA 7(a) loans. Given the flexibility of these loans coupled with the Small Debt Relief Program, small businesses may want to consider researching these loans as an alternative funding option.  For more information on the Small Business Debt Relief Program or any of the loan programs mentioned in this piece, please visit the SBA’s website at