The CARES Act brought significant relief to small businesses, and one crucial component was the Small Business Debt Relief Program. Administered by the Small Business Administration (SBA), this program aimed to ease the financial strain on small business owners by covering their loan payments. Specifically, the SBA was authorized to pay six months of principal, interest, and associated fees for eligible 7(a), 504, and Microloans. It’s important to note that Paycheck Protection Program (PPP) loans were excluded from this particular debt relief initiative, as were Economic Injury Disaster Loans (EIDL).
Initially, eligibility for this debt relief was tied to loans fully disbursed before September 27, 2020. However, this was later amended by the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act, also known as the Economic Aid Act, on December 27, 2020. This amendment broadened the scope to include all 7(a), 504, and Microloans approved up to September 27, 2020, regardless of whether they had been fully disbursed. All other original provisions of the initial debt relief program remained unchanged.
Crucially, small business borrowers did not need to apply for this assistance. The SBA provided this debt relief automatically. Here’s how it worked:
- For loans not in deferment: The SBA made monthly payments based on the next payment due, covering up to six months of installments.
- For loans currently in deferment: SBA payments commenced with the first payment due after the deferment period ended, again for a total of up to six months of installment payments.
Lenders for 7(a), 504, and Microloans were directly informed by the SBA about these payment provisions. Lenders were then responsible for reporting the due amounts to the SBA once a loan was fully disbursed. Any payments collected from borrowers after March 27, 2020, could be applied to the outstanding loan balance or returned to the borrower, depending on the borrower’s preference.
Further Debt Relief Extended
Beyond the initial six-month period outlined in the CARES Act, the Economic Aid Act also authorized additional debt relief for 7(a), 504, and Microloan borrowers. This extended assistance, beginning on or after February 1, 2021, varied in level depending on when the loan was originally approved. For detailed information regarding the availability of this additional assistance for specific SBA loans, borrowers were advised to contact their lenders directly.
It’s vital to remember that all debt relief initiatives described were ultimately contingent upon the level of funding made available by the U.S. Congress.
