“In all my years in M&A, I’ve never seen anything like this.” – Max Friar, Founding Partner, Calder Capital, LLC
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.
Specifically, the language in the Bill states, “The Administrator shall pay the principal, interest, and any associated fees that are owed on a covered loan in a regular servicing status.”
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. Payments commence with the first payment due after March 27, 2020. The SBA will pay six months of principal, interest, and fees for new SBA loans made between March 27, 2020, and September 27, 2020.
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 unparalleled action provides quantifiable relief to small business owners and a great opportunity for those interested in purchasing a small business.
While the 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.