COVID Relief Act has 6 Months No Payments on New SBA Loans in 2021; plus PPP 2021!


Bill Grunau

Great news for business owners-sellers and business buyers in 2021! 

6 Months No Payments on New SBA Loans from February thru September 2021 plus PPP Loan Program 2021! 

The COVID Relief Act passed in December 2020 has reinstated the 6 months of loan forgiveness on new SBA 7a loans funded between February 1st, 2021 and September 30th, 2021.  This means a buyer using SBA financing will not have any loan payments for the first six months after closing and the principal and interest due will be paid by the SBA (essentially forgiven). 

For example, a $1 million SBA 7a loan at 5.75% (SBA rate as of December 2020), the monthly payment is $10,976.92 and the buyer would save $54,000 (loan forgiveness is capped at $9,000 per month).

Obviously, this saves buyers 6 months of loan payments and equally importantly it gives buyers 6 months to build working capital through increased cash flow as a result of no loan payments.

In 2020 Pacific Business Sales closed many transactions with this program and it was responsible for substantially increasing business sales and SBA loan activity until it ended in September.  We expect this program to do the same for 2021 business sales and SBA loans.  2021 is already shaping up to be a very business year for business sales.

UPDATE: SBA 7a Guarantee Fee Waived & 3 Additional Months Loan Forgiveness on 2020 Loans 

The final COVID Relief Act may include a waiver of the 3%, or 3.5% for loans over $750,000, SBA 7a loan guarantee fee paid by the buyer.  On a $500,000 SBA loan, this is a savings of $15,000, and on a $1 million SBA loan, this is a savings of $35,000!  We should have confirmation of this by early January.  

The COVID Relief Act also includes an additional 3 months of Loan forgiveness for qualifying SBA loans funded in 2020 that had 6 months of loan forgiveness.  

More Great News, PPP 2021 

The COVID Relief Act also includes funding and rule changes (good ones) to the popular PPP program.  There is a Round 2 of PPP and business with 2020 sales that are 25% lower than the same quarter in 2019 qualify.  

A few more details below…

  • 2020 sales 25% lower than the same quarter in 2019 qualify.
  • Business less than 300 employees
  • Simplified loan forgiveness for loans under $150,000
  • 2.5 months average 2020 payroll for loan amount
  • Must use 60% for payroll and 24 weeks to use the funds 
  • Additional expense categories allowed for the other 40% use of funds 

List of FinTech Companies Offering PPP Loans

Most small business owners had difficulty obtaining PPP loans from their own banks if they banked with one of the big national banks.  Many were able to get PPP loans more quickly through local or regional banks and FinTech companies.  Below is a list of FinTech companies that offered PPP Loans during the 2020 PPP program. 

NOTE the SBA has not provided the banks with the guidelines or complete program information yet and the lenders will probably not be ready to start taking applications until mid-January 2021. 

  1. Kabbage
  2. Biz2credit
  3. Lendio
  4. Fundera
  5. Divvy 
  6. BlueVine
  7. OnDeck
  8. NAV
  9. Ready Capital
  10. Cross River Bank
  11. Square
  12. Paypal
  13. Intuit(Quickbooks)
  14. Credibly
  15. Brex + Womply
  16. Fundbox

Details on SBA Loans and PPP Round 2 in COVID Relief Act of 2020/2021

Section 325: Extension of Section 1112 Payments, the debt relief program.  

Provides $3.5 billion in funding for extension of Section 1112 payments—appropriations available through September 30, 2021.

  • Resumes the payment of principal and interest (P&I) on small business loans guaranteed by the SBA under the 7(a), 504 and Microloan programs, established under Section 1112 of the CARES Act.
  • Provides that all borrowers with qualifying loans approved by the SBA prior to the CARES Act will receive an additional three months of P&I, starting in February 2021. Going forward, those payments will be capped at $9,000 per borrower per month.
  • Provides   that,   after   the   three-month   period   described   above,   borrowers   considered   to   be underserved—i.e.,  the smallest  and  hardest-hit  by  the  pandemic—will  receive  an  additional  five months of P&I payments, also capped at $9,000 per borrower per month. These include:
    • Borrowers with SBA microloans or 7(a) Community Advantage loans
    • Borrowers with any 7(a) or 504 loan in the hardest-hit sectors, as measured by the severity of sector-wide job losses since the start of the pandemic, including all those belong to 2- and 3- digit NAICS categories with the most severe job losses since the start of the pandemic: accommodation and food services (72); arts, entertainment, and recreation (71); educational services (61); mining and logging (213); apparel (315); clothing and clothing accessory stores (448); sporting goods, hobby, book, and music stores (451); air transportation (481); transit and ground passenger transportation (485); scenic and sightseeing transportation (487); publishing industries, except Internet (511); motion picture and sound recording industries (512); broadcasting, except Internet (515); rental and leasing services (532); and personal and laundry services (812).
  • Provides SBA payments of P&I on the first 6 months of newly approved loans will resume for all loans approved between February 1 and September 30, 2021, also capped at $9,000 per month.
  • Specifies that if the SBA projects that appropriations provided for the debt relief program are insufficient to fund the extensions provided, the Administrator may proportionally reduce the number of months provided in each extension.
  • Clarifies eligibility and increases program integrity:
    • SBA payments should be made on any loan approved before the applicable deadline, and debt relief payments should be made only once the loan is fully disbursed.
    • SBA may establish a minimum loan maturity period for each loan product covered under this section to prevent program abuse.
    • Any business or applicant may only receive P&I payments for only one loan approved after CARES Act enactment.
  • Requires that SBA place program information on its website, conduct outreach to all borrowers, report monthly to Congress on program spending, and educate lenders, borrowers, SBA district offices, and resources partners about the program.”
Bill Grunau

About the Author

Bill Grunau

Bill has over 20 years of experience as a Business Broker specializing in industries ranging from manufacturing to construction/contractors, technology and software, B2B services, distribution-3PL, and healthcare. His transaction experience includes successfully closed transactions as both stock sales and asset sales including transactions with licensing such as contractors, healthcare, and companies with government contracts in Orange County and other Southern California locations. Bill works closely with a team of financial advisors specializing in tax strategies to minimize taxes on the sale of a business and are available to advise clients on how to minimize the tax liability on the sale of their business. Bill is the author of “Own Your Future, Straight Talk about How to Buy a Business and Build Your Future” Bill has a BS in Electrical & Electronic Engineering studying at Cal Poly Pomona and West Coast University and also studied at Claremont Graduate school EMBA program.