Frequently Asked Questions



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Central Servicing Agent FAQ
504 CARES ACT SECTION 1112 Frequently Asked Questions
April 17 and 21, 2020


Q: When a ‘COVID-19 Agreement’ is signed to remediate an adverse change and submitted at closing, how will the CSA know that the loan is on deferment?
    A: After closing, SBA will provide a list to the CSA of the loans for which a COVID-19 Agreement was executed and submitted to SBA. The loans with COVID-19 Agreements are granted automatic deferments.
Q: How does the CSA know for how many months recently funded loans are on deferment? The agreement states at least 90 days and up to 6 months. Do CDCs need to do anything on their end to let the CSA know?
    A: To efficiently handle the large volume of loans that are closed each month, the CSA received guidance from SBA to initially apply a 90 day deferment for April, May, and June funded loans. Before the end of the 90 day deferment, the CDC must consult with the Borrower on whether to extend the deferment period up to an additional 90 days.
Q: Please confirm that when a set deferment period ends, the CDC does not need to do anything for the debt relief payments to begin.
    A: Correct. The CSA will begin the Section 1112 payments on the first scheduled payment due date after the deferment has ended.
Q: When a deferment ends, when will the catch-up plan start for that loan?
    A: The catch-up plan starts when the deferment period ends. Note that the section 1112 payment will cover the regular monthly payment, but the borrower is obligated to pay the catchup amount.
Q: Does the CDC need to initiate the catch-up plan for loans funded in April, May and June 2020 which provided a COVID-19 Agreement?
    A: To efficiently handle the large volume of loans that are closed each month, SBA instructed the CSA to initially default to a 5-year catch-up plan for these loans. The CDC must contact CSA at least one month before the end of the deferment period to coordinate on the catch up plan. The CDC must contact the Borrower before the deferment period ends to determine the length and the other terms of the catch-up plan.
Q: For loans currently on full or partial deferments that were granted prior to April 15th, what is the process for ending the deferment and starting the SBA payments authorized under Section 1112 of the CARES Act? (Section 1112 of the CARES act will be referred to as Section 1112 payments.)
    A: The CDC needs to inform the CSA through email that the CDC has ended the deferment early and to request the CSA to begin the Section 1112 payments.
Q: For loans funded with the April 15 debenture sales that were granted deferment pursuant to Procedural Notice 5000-20010, effective 3/25/20, how can these deferments be ended early?
    A: In order to end the deferments early for newly funded loans in the April, May, and June 2020 sales with COVID-19 agreements to address adverse change experienced by the small business, the borrower must request the early end of the deferment and the CDC must submit this request for approval to the SBA Commercial Loan Servicing Center (CLSC). Please refer to Procedural Notice 5000-20020, effective April 16, 2020 for more information. If the CLSC approves the early end to the deferment, the CDC would need to send that approval to the CSA.
Q: Does the CDC need to do anything to activate payment under section 1112 of the CARES Act?
    A: No, the CDC does not need to do anything to activate the Section 1112 payments. The CSA has received guidance from SBA for making the Section 1112 payments.
Q: Does the CARES Act cover catch-up payments?
    A: No, Section 1112 payments will only cover the regular monthly payment amount, not the difference between the catch-up amount and the regular monthly payment amount. The borrower remains responsible for the catch-up payment and the borrower must remit the catch-up payment to the CSA by wire or check. The CSA will not make an ACH debit for the catch-up amount during the 6-month period that the borrower is receiving Section 1112 payments.
Q: Can the borrower receive Section 1112 payments during a period of a partial deferment?
    A: No.
Q: Can the borrower receive Section 1112 payments for the 6-month period and then go on deferment?
    A: Yes. Borrowers will need to work with their CDCs and SBA encourages CDCs to grant deferments as appropriate when the Section 1112 payments end.
Q: Are borrowers who normally make their loan payments via wire or check (not set up on an ACH) eligible for the Section 1112 payments beginning in April?
    A: Yes. If a borrower made its regular monthly loan payment for April, the CDC must inform the Borrower that it has the option of the CDC either returning the loan payment to the Borrower or applying the loan payment to further reduce the loan balance after application of SBA’s payment.
Q: Should I proactively submit a request to delete my borrower’s ACH so they are not at risk of being debited?
    A: No, there is no need to delete ACH right now. There will be no ACH debit processed by the CSA until October 1, 2020.
Q: Should I submit ACH changes if my borrower has a routine account or routine number change (ex: switching checking accounts)?
    A: Yes, normal account maintenance should continue to prepare the borrower for end of the 6-month period of SBA payments.
If you have any questions please contact the SBA 504 Central Servicing Agent by email at SBA504CSA@WellsFargo.com.

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New Questsions have been answered - see Questions 19 and 20 - The U.S. Small Business Administration and U.S. Department of Treasury PAYCHECK PROTECTION PROGRAM LOANS Frequently Asked Questions (FAQs) Document

Please send your PPP policy questions to 7aPaycheckLoanProgramQuestions@sba.gov

Questions concerning Small Business Debt Relief Program
SBA has provided information indicating that the ACH for April 1, 2020 has been rescinded. The SBA will make the April 1 payments to the CSA for active 504 borrowers not on deferment or whose debentures have been repurchased and are in SBA servicing. The payment to the CSA will be made before April 30, and payments will be made monthly to the CSA through and including the September 1 payment. The following are additional questions regarding the payment subsidy:

1. Will SBA allow loans that were submitted to the CSA prior to March 20 for payment deferment beginning April 1, 2020 to (1) cancel the deferment altogether and begin the payment subsidy on April 1 or (2) reduce the deferment period to 1 month and allow the payment subsidy to begin on May 1? What about other 504 loans on deferment?
    Answer: SBA provided this guidance April 2. For any loan funded before March 27, 2020, borrowers whose 504 loans have not been repurchased by SBA may voluntarily end the approved deferment that was granted by SBA in order to take advantage of the six month payment subsidy. CDCs must notify borrowers of the option to end the deferment early or to wait until the deferment ends to receive the six month payment subsidy. The borrower must make the choice, not the CDC. The CARES Act allows SBA to waive the statutory limits on maximum loan maturities where a deferral extends the maturity of the loan.

2. What if the loan was past due? Will the payment subsidy start at the next due date of the loan versus the April 1 date specified in CARES Act?
    Answer: CARES Act states that the payment subsidy will begin with the next payment due date following enactment (March 27, 2020), thus the borrower will still be responsible for the past due payments.

3. Will post-debenture-purchased loans in regular servicing receive the 6-month debt forgiveness as well?
    Answer: SBA issued Notice 5000-20012 on March 30, 2020 indicating all SBA serviced 504 loans (504 loans that have been repurchased by SBA and are in regular servicing by SBA) will receive an automatic deferment of payment through Dec. 31, 2020. Borrowers may continue to make payments during this time. Interest will continue to accrue during any deferment period.

4. Will 504 loans that have concluded a deferment period and are in catch-up (i.e., in regular 504 servicing with the CDC) receive the 6 months payment subsidy?
    Answer: Yes, any 504 loan in regular servicing with the CDC that has not been repurchased by SBA is eligible for 6 months loan payment subsidy.

5. Will the SBA cover the borrower’s TPL loan payments for 6 months as well as the 504 loan?
    Answer: No, the SBA will only subsidize the 504 loan payments (principal, interest and fees) for six months. The borrower must contact their TPL for any relief needed on the bank’s loan.

6. If a borrower obtains one or all of the other CARES loans (PPP, EIDL, or EEI Grant), will they be precluded from receiving the 6 months of payment subsidy on the 504 loan?
    Answer: No. Borrower’s may avail themselves of any and all CARES programs for which they are eligible, but may not duplicate use of funds between the programs (i.e., you cannot fund the same utilities expense under both PPP and EIDL).

7. Are ILP Borrowers eligible for payment subsidy?
    Answer: The CARES Act includes micro loans (section M) but ILP is included in section L and is thus not covered.

8. CDCs have/manage many loan funds from Federal and state agencies. Are any of these non-SBA program borrowers eligible for 6 months of payment subsidy? If yes, how do CDCs assist their borrowers to obtain the payment subsidy?
    Answer: The Small Business Debt Relief Program of the CARES Act will provide immediate relief to small businesses with non-disaster SBA loans, in particular 7(a), 504, and microloans, but not for any other loans. Borrowers may apply to SBA for an EIDL loan to assist with these payments.

9. Can CDCs apply for EIDL loans for their company?
    Answer: While SBA Disaster Loan information says a non-profit that is tax exempt under sections 501(c), (d) or (e) is eligible for an EIDL under the COVID-19 provisions, SBA has informed NADCO that CDCs are ineligible to apply for an EIDL loan or EDIL advance.


Questions on the Paycheck Protection Program (PPP) including Loan Forgiveness
The program would provide cash-flow assistance through 100 percent federally guaranteed loans to employers who maintain their payroll during this emergency. If employers maintain their payroll, the loans would be forgiven, which would help workers remain employed, as well as help affected small businesses and our economy snap-back quicker after the crisis.

1. Will SBA permit Community Advantage Lenders to make PPP loans? Will CDCs be approved to make PPP loans?
    Answer: While SBA has not specifically named CDCs or Community Advantage Lenders as eligible to be PPP Lenders, SBA’s web link to eligible PPP lenders includes some CDCs (who may be listed because they are also Community Advantage Lenders).

2. Can CDCs apply for PPP loans for their company?
    Answer: SBA has informed NADCO that CDCs are ineligible to receive a PPP loan. Under SBA’s regular eligibility guidelines, SBA considers CDCs to be financial institutions primarily engaged in lending and therefore ineligible to receive a government-guaranteed loan.

3. How does a borrower have all or a portion of the PPP debt forgiven? Does the borrower apply to the PPP lender and the PPP lender then apply to SBA? Is applying to forgive all or a portion of the PPP loan a separate application process than applying for PPP loans?
    Answer: The borrower will supply the necessary documentation (payroll tax filings, proof of lease payments, etc.) to the PPP lender. The PPP lender will make a determination that the use of loan proceeds is sufficiently documented to be eligible for debt forgiveness. The PPP lender will submit a “lender’s report of expected loan forgiveness” to SBA. SBA will repurchase that amount of the loan from the PPP lender.

4. Can borrowers apply for both EIDL grants and PPP loans and receive the 6 month payment subsidy?
    Answer: Yes, you can apply for EIDL grants as well as PPP loans, but the use of funds cannot be for same purpose. If a borrower receives the 6 month payment subsidy, they may not claim the interest and fees funded by SBA as an eligible cost under PPP or EIDL grants.

5. Is the amount of the PPP loan that is forgiven included in taxable IRS income?
    Answer: No, the CARES Act specifically states that the amount of debt forgiven under PPP is not taxable for Federal income tax purposes.

6. If accountants or others assist small businesses with information needed to prepare a PPP application or to apply for the EIDL grant, can they charge fees to the small business?
    Answer: Under the PPP, the Lender is paid a fee by SBA for processing the loan, and no additional charges or fees may be assessed to the borrower by the lender or a third-party agent who assists the borrower. The PPP Lender may pay the agent out of its fees. The SBA Disaster Program rules apply to the EIDL program covering payments to agents.


Questions on CARES Act Programs

1. Can borrowers apply for both EIDL grants and PPP loans and receive the 6 month payment subsidy?
    Answer: Yes, you can apply for EIDL grants as well as PPP loans, but the use of funds cannot be for same purpose. If a borrower receives the 6 month payment subsidy, they may not claim the interest and fees funded by SBA as an eligible cost under PPP or EIDL grants.

2. Does the CARES Act permanently suspend the Personal Resources Test for all SBA products?
    Answer: The CARES Act permanently suspends the personal resources test for SBA 7(a) loans, 504 loans and micro loans; however, the Credit Elsewhere requirement still applies to SBA loans except loans made under CARES (PPP, EDIL).


Other Questions

1. We have borrowers whose Job Creation request for their two year anniversary coming up; when the original request was sent the businesses were still open and operating now, and now they are closed due to the COVID-19 crisis. Do you have any guidance from SBA about how we should be tracking their “job creation” or if there is a way to best address this special circumstance with SBA for our borrowers?
    Answer: Additional guidance from SBA will be necessary, but we do know that legislation requires that the small business report within two years of funding, thus it is doubtful that SBA can waive the requirement for reporting during the COVID-19 crisis or stop counting those numbers.

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Questions concerning Small Business Debt Relief Program
SBA has provided information indicating that the ACH for April 1, 2020 has been rescinded. The SBA will make the April 1 payments to the CSA for active 504 borrowers not on deferment or whose debentures have been repurchased and are in SBA servicing. The payment to the CSA will be made before April 30, and payments will be made monthly to the CSA through and including the September 1 payment. The following are additional questions regarding the payment subsidy:

1. How should borrowers handle the automatic ACH debit once SBA begins paying the payments on behalf of borrowers? Should borrowers notify the banks to stop the ACH debits, will the CSA simply not send out the ACH tape for six months, and once the six-month period has ended, are new ACH debit forms required to reinstate the process?
    Answer: NADCO is currently waiting additional guidance on this issue.

2. Each month, SBA will make payments to the CSA covering the principal, interest and fees for every active 504 borrower. The first payment will be made by April 30. Will the remaining 5 payments be made by the first of the month? How will the borrower’s amortization schedule be impacted by the late payment in April? Will principal and interest be applied as if the payment were made on the first of the month? If subsequent payments are not made on the first, how will the principal and interest payments be applied? Will the borrower’s prepayment costs be impacted by the method or timing of SBA payment to the CSA?
    Answer: NADCO is currently waiting additional guidance on this issue.

3. Assuming the CSA sends servicing fees to the CDCs from the payments made by SBA, will the April servicing fees not be paid until SBA has paid the CSA? Will servicing fees be paid in the normal fashion (ACH) and in the normal time frame for the months of May through September?
    Answer: NADCO is currently waiting additional guidance on this issue.

4. Will CDCs still be allowed to receive their monthly post-debenture loan servicing fees as provided for in individual modification agreements? Note: these fees are collected directly by the CDCs from the borrowers – there is no SBA accounting.
    Answer: NADCO is currently waiting additional guidance on this issue.

5. If a debenture is in place, may the CDC still give the borrower a 6-month unilateral deferment, if needed, after the 6-month debt forgiveness period or will the CDC need SBA approval of deferment and accompanying modification agreement (Note: PCLP CDCs have unilateral authority)?
    Answer: NADCO is currently waiting additional guidance on this issue.

6. If a 504 loan has already been approved by SBA but has not yet funded, does the loan have to fund (debenture sale concluded) by September 25, 2020 (six months after enactment of CARES) to be eligible to receive the 6 months of payment subsidy? Will a 504 loan approved by SBA no later than September 25, 2020 be eligible to receive the 6 months of payment subsidy?
    Answer: NADCO is currently waiting additional guidance on this issue.

7. How will payments of loans on catch-up be structured? Will SBA be covering the entire payment included the increase amount of the catch-up or will it be the standard ‘before deferment’ amount?
    Answer: NADCO is currently waiting additional guidance on this issue.

8. How do CDCs with micro loan programs work with SBA to obtain the 6 month payment subsidy for their borrowers?
    Answer: NADCO is currently waiting additional guidance on this issue.

9. What will be the tax treatment of the 6 months of payment subsidy? We assume the borrower cannot take tax deduction for the interest and fees paid by SBA, but will the 6 month payment subsidy be treated as taxable income?
    Answer: NADCO is currently waiting additional guidance on this issue.


Questions on the Paycheck Protection Program (PPP) including Loan Forgiveness
The program would provide cash-flow assistance through 100 percent federally guaranteed loans to employers who maintain their payroll during this emergency. If employers maintain their payroll, the loans would be forgiven, which would help workers remain employed, as well as help affected small businesses and our economy snap-back quicker after the crisis.

There are no additional questions at this time.


Questions on CARES Act Programs

1. How does a borrower apply for an Emergency Economic Injury Grant? Does SBA fund those directly to borrowers through its Disaster Loan Program?
    Answer: NADCO is currently waiting additional guidance on this issue.

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