by Shay Mora, Vice President of Lending Operations, FranFund, Inc.
The U.S. Congress has authorized additional Paycheck Protection Program benefits that aid both new and existing franchise businesses. The essential and long-anticipated program will help Main Street small businesses across America get the capital to keep their doors open while they continue to navigate through the pandemic. Also, it appears that the pandemic has increased demand for franchise ownership. For this reason, it is imperative to be aware that there are new benefits available in the program for owners choosing to obtain an SBA loan to finance a franchise opportunity in the designated period.
The SBA has approved approximately 60,000 PPP loan applications, submitted by nearly 3,000 lenders between the program’s re-opening on Monday, January 11 to Sunday, January 17. The total loan amount is over $5 billion. America’s small businesses are struggling, and the newly passed COVID Relief Act passed on December 27, 2020, initiated a critical lifeline for Main Street.
There are benefits for new borrowers, as well as an outline for first- and second-round PPP loans for existing business owners. The following summarizes FranFund’s understanding of the benefits and opportunities available at this time.
For SBA loans approved between December 27, 2020, and September 30, 2021:
1.) Waived SBA guaranty fee for the Borrower (3-3.5% of the guaranteed portion of the loan amount)
2.) SBA guaranty is increased from 75% to 90%
The increased guaranty fee will not decrease the personal equity injection required from the Borrower but will encourage lenders to continue lending and may incentivize additional banks to begin lending to start-ups and new business owners. Qualifications for borrowers such as credit score, collateral and cash injection will not change.
3.) For loans approved (an SBA loan number has been issued) between February 1, 2021, and September 30, 2021, the SBA will cover six months of principal and interest.
The approval referenced must be obtained from a lender after a complete loan package has been submitted and approved for funding.
General Terms
The new Economic Aid Act extended this program for SBA to pay the principal, interest, and associated fees for SIX months for eligible borrowers.
Eligibility is now based on when the loan was approved (this means an SBA loan number has been issued) instead of when the loan is fully disbursed. Payments will be covered when the loan is fully disbursed (or if already in regular servicing status, when the next payment is due). No action required from the Borrower, and instead, the Lender is required to identify and submit these eligible loans to SBA. Loan payments are capped at $9,000/month.
Newly Eligible First Round Loans:
Any SBA 7a or 504 loans approved on or before September 27, 2020, is eligible for the First Round Payments, even if not fully disbursed by that date. These loans will begin to receive six months of payments once the loan is fully disbursed and the first full payment is due. If the loan is on deferment, payments will begin the first month after the deferment period. The First Round Payments must be completed before a Newly Eligible First Round Loan may receive any Second Round Payments.
Eligible Second Round Payments
For loans approved before March 27, 2020, and NOT on deferment, SBA will:
- Cover 3 months of payments beginning on or after February 1, 2021
- Cover an additional five months immediately following the end of the 3-month period for a Borrowers in several categories such as salons, clothing, fitness, etc. (NAICS code beginning with 61, 71, 72, 213, 315, 448, 451, 481, 485, 487, 511, 512, 515, 532, or 812 (https://www.naics.com/search/)
For loans approved before March 27, 2020, that IS on deferment, SBA will:
- Cover 3 months of payments (beginning on or after February 1, 2021) beginning with the later of:
- the next payment due on the loan after the deferment period or the first month after SBA has completed the First Round Section 1112 Payments
- if your loan is on deferment, you can voluntarily decide to end it early to receive the payments, but once the payments begin, they must be continuous and cannot be interrupted by deferment.
- Cover an additional five months immediately following the end of the 3-month period for the same Borrowers under the NAICS codes as above
- For loans approved between February 1, 2021, and September 30, 2021, SBA will cover six months of payments
- For loans approved between March 27, 2020, and September 27, 2020, SBA may make Second Round Payments if SBA determines there are sufficient funds.
Ineligible Loans
- Loans in liquidation status
- Loans in delinquent status more than 120 days
- Borrower (entity) that has received or will receive the payments for a loan approved 3/27/2020- 9/27/2020 cannot receive payments for any other loan beginning on or after 2/1/2021. This one-loan limitation does not apply to affiliates of the Borrower (entity)
- IMPORTANT: Loans approved on or after September 28, 2020 and ending on January 31, 2021. Lenders are prohibited from canceling a loan approved during this period and resubmitting a loan for a similar purpose on or after February 1, 2021, to obtain Section 1112 payments for the Borrower. Lenders are also prohibited from refinancing a loan on or after February 1, 2021, that was approved beginning on September 28, 2020, and ending on Jan 31st to obtain the 1112 Payments.
Visit the FranFund website https://www.franfund.com/coronavirus-small-business#ppp-cares for frequent updates.