“I honestly never thought we’d see this again. This is a huge win for small business buyers and should be a strong catalyst for getting deals done in 2021!” – Max Friar, Managing Partner, Calder Capital, LLC.
Background on CARES & Section 1112
The recent December 2020 $900BB stimulus bill is a follow-up to the Coronavirus Aid, Relief and Economic Security (CARES) Act passed in March 2020, a historic piece of legislation approved 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 was Section 1112, which required the Small Business Administration (SBA) to make payments on new and existing 7(a) loans for six months.
New COVID Relief Bill HR 748
In a victory for small business buyers, December’s legislation allocated $17,000,000,000 to and extended payment subsidies for new SBA 7(a) loans up to $9,000/month approved between February 1 and September 30, 2021.
Specifically, HR 748 (pages 29-30) states the following:
- “IN GENERAL. – The Administrator shall pay the principal, interest, and any associated fees that are owed on a covered loan in a regular servicing status.” (emphasis added).
- “TIMING OF PAYMENT. – The Administrator shall begin making payments under paragraph (1) on a covered loan not later than 30 days after the date on which the first such payment is due.”
- “APPLICATION OF PAYMENT.—Any payment made by the Administrator under paragraph (1) shall be applied to the covered loan such that the borrower is relieved of the obligation to pay that amount.”
Specific Lender Guidance Received*
*Recently, we spoke with a long-time SBA banker associate of ours. Here is what he said. Please note that full details have not been completely rolled out:
- SBA guaranty fees to be waived during this period.
- SBA guaranty fee to be increased from 75% to 90% during this period
- SBA to pay the first 6 months of payments up to a max of $9,000 per month during this period.
From this lender: “NOW is the perfect time to apply and discuss that business acquisition, debt refinance, new building or additional equipment you have been pondering all during 2020.”
Advice for Buyers/Sellers
According to Max Friar, “Sellers that want to sell need to get moving. Buyers are already out looking and this will serve as a major catalyst for demand Q1-Q3 2021. Likewise, buyers that want to buy should not wait. Lenders have been and will continue to be backed up based on new PPP loans, forgiveness applications for 2020 PPP Loans, and now dealing with what is likely to be a bit of a surge for SBA loans. Last year, we saw many buyers become disappointed because they could not get their loan approved before the deadline expired. If you wait until August to get going, chances are you will miss out.”
Friar continued, “It’s important to remember that while there are a lot of banks and bankers, there are relatively few SBA specialists and they are already busy. Secure a business, get organized, be prepared, and be responsive to lender requests.”
Final Thoughts
“I am very excited about this!” concluded Max Friar. “The deal market was hit hard in 2020. Industry-wide, transactions were down 22% for small businesses and 13-15% for all transactions domestically and internationally. Having the first six months of 7(a) loan payments completely covered will be a boon to the deal market, and should boost buyer demand and risk appetite for small transactions <$5MM!”
If you are interested in buying a business, please review our business -for-sale inventory and coming soon opportunities. If you are interested in selling, please contact us confidentially below. Please note that we are NOT an SBA lender.