In General, MA-Buying, MA-Selling, MS-Buying, MS-Selling

As part of the Economic Aid Act that passed in December (and modified 2/18/2021), the Small Business Administration will make borrowers’ payments for three months on new SBA 7(a), 504 real estate and micro-loan programs.

These incentives were available last summer under a stimulus program that expired in September 2020.

The SBA will make the first three months of payments (principal and interest) on new loans approved between Feb. 1 and Sept. 30, 2021 until funding runs out. To be clear, these payments will be covered, not deferred or pushed back to the end of the loan period. Payments are capped at $9,000 per borrower per month.

The Section 7(a) loan can be used to buy a business or used for working capital, equipment, or inventory. Qualified borrowers can access up to $5 million with a 10-25% down payment on a 10 year term.

The SBA’s 504 program can be used for assets to grow your business, including land, facilities, facility improvements, and long-term and equipment or improvement or modernization of land, streets, utilities, parking lots and landscaping of new or existing facilities with 10 and 20 year maturity terms available. 

Would-be borrowers will have to get approval through an SBA lender. But the good news here is that the new law has increased the federal guarantee for the loans from 75% under last year’s program to 90% this year for most loans. That lowers the risk for lenders and makes it easier for them to extend financing.

Borrowers with existing loans will receive an additional three months of payments and interest also. (These borrowers previously received payment assistance from the SBA.) Plus, borrowers in the hardest-hit industries, such as restaurants, salons, entertainment, arts, and recreation, can receive an additional five months of payments.

SBA loan origination fees typically run 2.5 to 3.5% of the loan amount and these are being waived as well.

On a loan of $5 million, SBA fees could be about $138,125 or more. That’s free money for buyers who move now and get their loan issued soon. While the program is set to end on September 30, 2021, it could be closed earlier if all funds have been exhausted.

The SBA maintains a list of authorized lenders on its website. We recommend reviewing a lender’s SBA loan closure rate to ensure you’re working with an experienced, responsive lender. Please note that other general eligibility standards include falling within SBA size guidelines, having qualified management expertise, a feasible business plan, good character and the ability to repay the loan.

If you are acquiring a business, your M&A advisor or investment banker should be able to recommend active SBA lenders with a track record of success.

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