SBA Loan Payment Coverage (During COVID-19)

The CARES Act’s $2-trillion stimulus package includes $17 billion to cover non-COVID-related SBA loan payments for six months. That means six months of loan payments you’ll never have to make. If you have an existing SBA 7(a) or 504 loan (or are considering getting one), here’s how this loan subsidy program will work.

Which loans are eligible for payment coverage?

All SBA 7(a) loans and 504 loans are eligible for payment coverage, with the exception of loans that are delinquent (generally, loans more than 120 days behind on payments or considered to be in “liquidation” status).

The loans must have been disbursed prior to September 27, 2020 (yes, that means that you could get a new 7(a) loan today and have the initial payments entirely covered).

EIDL loans are not eligible for payment coverage.

How do I apply for payment coverage?

The SBA will directly pay your lender. All qualifying loans will be enrolled in this program automatically, so there is nothing you need to do to opt in or set up.

How are my loans covered?

The SBA will directly make payments to cover your principal, interest, and monthly fees. The fees include the extraordinary servicing fee, the SBA guarantee fee, the CSA fee, and the CDC servicing fee. On your loan statement, the payment may be listed as “CARES Act Payment”.

Most banks have paused automatic ACH payments, so you will not be charged during the covered period. If you make a payment during this period, your lender will let you either take the funds back or reduce your loan balance accordingly.

How long will my loan payments be covered for?

Your loan payments will be covered for six consecutive months, beginning on the first payment due after March 27, 2020.

If your outstanding SBA loan has fewer than six months of payments remaining, the SBA will simply cover the remainder of your loan. However, they won’t cover any outstanding late fees.

If your loan does not follow a monthly payment plan, the SBA will cover a half-year’s worth of payments, and pay your lender according to the loan schedule in place.

If your loan is currently deferred, you can choose to cancel your deferment period early to begin benefitting from the six-month SBA loan coverage period, or wait until the deferment period ends.

How should I track these payments in my books?

The SBA payments will need to be tracked to accurately reflect your outstanding loan balance. If you’re taking on bookkeeping yourself, we recommend that you create a new custom ledger or account to track the “revenue”, and then apply the SBA’s payments against your SBA loan payable ledger and your interest expense ledger.

Are these loan relief payments taxable or treated as income?

Guidance has been released which clarifies these payments are not treated as taxable income.

Other COVID-19 resources

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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

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