Your Business Credit

How to get part of your SBA loan forgiven under the CARES Act

If your business is facing a COVID cash crunch, there are still some unexplored financing options from the SBA


Under the CARES Act, the Small Business Administration will pay six months of principal, interest and associated fees for borrowers who took out certain SBA loans disbursed before Sept. 27, 2020. Here’s what you need to know.

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With some cities going into a second round of lockdowns in the pandemic, many small business owners, particularly those in brick-and-mortar businesses, are facing a big challenge: A cash crunch. It’s hard to keep the lights on when you can’t serve customers.

Fortunately, there are still some unexplored financing options.

The Coronavirus Aid, Relief and Economic Security (CARES) Act set aside $350 billion to help small businesses keep people employed during the pandemic.

Many small business owners rushed to apply for the Paycheck Protection Program (PPP), a forgivable loan that covers eight weeks of payroll and some designated expenses, such as business rent and utilities. However, many don’t know about another aspect of the CARES Act that may help them build a cash cushion.

Check out all the answers from our credit card experts.

Ask Elaine a question.

Who is eligible?

Under the CARES Act, the SBA has been empowered to pay six months of principal, interest and associated fees for borrowers for all current 7(a), 504 and microloans disbursed before Sept. 27, 2020. (The relief isn’t available for PPP or Economic Injury Disaster loans).

Even better, you don’t have to do anything to receive this assistance. The SBA will provide it automatically, as long as your loan has been disbursed by the deadline.

To be eligible, a small business must have fewer than 500 employees and less than $7.5 million in annual revenue. Applicants must be running a for-profit business based in the U.S. and not be delinquent on any taxes owed to the government.

See related: Should you apply for PPP forgiveness now or later?

How does the relief work?

If a loan is not in deferment, the SBA will begin making payments when the next payment is due on the loan and continue doing so until the six monthly payments have been made.

If the loan does happen to be in deferment, the SBA will start to make payments with the next payment due after the deferment period has ended; the SBA’s payments will continue until it makes all six monthly payments.

For loans that were made by March 27, 2020 and fully disbursed before Sept. 27, 2020, the SBA will start making payments with the first payment due on the loan and continue for the next five monthly payments.

Owners don’t have to contact lenders to let them know they are participating in the program. The SBA says it has notified 7(a), microloan and 504 lenders that it will make these payments on behalf of borrowers.

The lenders have been asked not to collect these payments from the borrowers. The SBA has published a procedural notice for lenders on its website.

What if you already made a payment on one of these types of loans since March 27? Lenders have been told to inform borrowers that they have the option to ask for their payments to be returned or to apply it to the loan to further reduce the balance after SBA’s payment.

See related: New business financing sources to try when the bank says no

What if you haven’t applied for a loan?

If you’re interested in getting the six months of relief from any of the loans covered by this program but have not yet applied for the loan, this week would be a good time to reach out to your lender. The SBA has published a guide to these loans that is worth checking out if you are not familiar with them.

Loans sometimes require a lot of paperwork, and that takes time to prepare. What’s essential to getting the relief is disbursement of the funds by Sept. 27. This is one case where starting early is essential.

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