The Coronavirus Aid, Relief and Economic Security (CARES) Act is a historic piece of legislation with the intention of providing economic relief to individuals and businesses facing hardship or economic ruin due to the COVID-19 pandemic. While there are many important provisions, perhaps the most pertinent part of the legislation for business buyers is Section 1112.
Section 1112 of the CARES Act requires the Small Business Administration (SBA) to make payments on new and existing 7(a) loans for six months. These are not deferments. They are full payments of principal and interest that the borrower will never be responsible for again.
How does it work? Congress is providing $17 billion in funding. With this, SBA is required to pay the principal, interest, and any associated fees owed on a 7(a) loan in regular servicing starting with the next payment due for both existing and new borrowers. Any loan made under the 7(a) program is eligible.
All borrowers are assumed to be “adversely affected by COVID-19” and all relief payments are deemed appropriate for all borrowers, creating a very clear, bright-line for lenders and removing the burden from lenders to determine if a borrower is eligible in any way—all borrowers are deemed eligible.
While this is a challenging time for small business owners, this unprecedented action provides incredible relief to small business owners and a great opportunity for those interested in purchasing a small business.
While small business buyer will face other challenges, the ability to “skip” the first six months of payments is highly beneficial. Contact us today if you’d like to be connected with an experienced and trustworthy SBA lender.