What You Need to Know About SBA 7(a) Loans in 2021

As you probably already know, Congress passed a COVID Relief Bill in December 2020, one of the results of which was a few additional benefits to borrowers and lenders of the SBA 7(a) loan–including payment relief (Section 1112). 

Earlier this month, the SBA found that there were insufficient funds to fulfill the Section 1112 payments that were originally planned. As of February 16, 2021, the time frames for Section 1112 payments have been reduced.

The pandemic relief enhancements of the SBA 7(a) loans are in effect until September 30, 2021–pending any additional adjustments of course.

Until further notice, recent changes to the SBA 7(a) loans are in effect through September 2021.

Here’s a quick overview of the changes that just went into effect:

  • Section 1112 payments for new 7(a) loans is now three months, reduced from six months. 
  • Borrowers with 7(a) loans approved before Mar. 27, 2020 will receive two additional months of Section 1112 payments, reduced from three months.
  • Businesses in specified NAICS codes may be eligible for an additional three months of Section 1112 payments (reduced from five months) immediately following the two months.

It’s possible that there will be further changes, especially with a third stimulus bill pending, so you’ll want to keep an eye out for further updates. Fortunately, by now most of us are pretty used to rolling with the punches in pandemic life.

  Standard Parameters Changes effective until Sept. 30, 2021
Payment relief via new loans N/A Three months of Section 1112 P&I payments (up to $9,000 per month) will be made by the SBA on behalf of the borrower, beginning with the first payment.
These payments constitute nontaxable income for the borrower.
New loans to a borrower who previously received Section 1112 payments are not eligible for additional payments.
Payment relief via existing loans N/A Existing 7(a) loans approved before March 27, 2020 will receive two additional months of Section 1112 P&I payments made by the SBA up to $9000 per month.
Businesses in specified NAICS codes may be eligible for five additional months of Section 1112 payments, instead of two.
7(a) loans approved between March 27, 2020 and September 27, 2020 and which previously received six months of Section 1112 P&I payments are not eligible for additional payments.
Maximum loan size $5 million The maximum loan size remains $5 million in 2021.
Maximum SBA loan guarantee 85% for loans up to $150,000 and 75% for loans greater than $150,000 Loan guarantees have been increased to 90%.
 
This significantly increases the amount of noninterest income lenders can generate through secondary market sales.
7(a) interest rates Lenders and borrowers can negotiate the interest rate, but it may not exceed the SBA maximums 7(a) loan interest rates are unchanged. 
 
-Loans under  $25K with maturity of under 7 years: WSJ Prime rate + 4.25
-Loans under  $25K with maturity of above 7 years: WSJ Prime + 4.75%
-Loans $25,001 to $50,000 with maturity less than 7 years: WSJ Prime + 3.25%
-Loans $25,001 to $50,000, with maturity greater than 7 years: WSJ Prime + 3.75%
-Loans > $50k with maturity less than 7 years: WSJ Prime + 2.25%
-Loans > $50k with maturity more than 7 years: WSJ Prime + 2.75%
Guaranty Fees 2 – 3.75% of the guaranteed portion of the loan Guaranty fees for both lenders and borrowers have been waived.
SBAExpress Loan size
A type of 7(a) loan with an accelerated turn around time of 36 hours.
The maximum loan size is traditionally $350,000. The maximum loan size has been increased to $1 million until Sept. 30, 2021.

After Sept. 30, 2021, the maximum loan size will remain increased, but only to $500,000.
SBAExpress Loan maximum guarantees 50% For loans of $350,000 and less, the guarantee is increased to 75%.

For loans above $350,000, the guarantee is unchanged.
SBAExpress Loan interest rates Lenders and borrowers can negotiate the interest rate, but it may not exceed the SBA maximums SBAExpress interest rates are unchanged.
 
Loans < $50,000: WSJ Prime + 6.5%
Loans > $50,000; WSJ Prime + 4.5%

For more detailed information about what the February 2021 changes to the SBA 7(a) loan look like, it’s broken down further here.

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Calder Capital, LLC