SBA Payment Forgiveness Expected to Fuel Acquisitions in 2021
As was the case last year, COVID-related federal stimulus benefits are expected to be a powerful catalyst driving deal activity in 2021.
On December 27, 2020, Congress passed the Consolidated Appropriations Act, 2021, a $2.3 trillion stimulus bill, with $900 billion targeted specifically for COVID-19 relief. A portion of these funds will be used to extend the popular 2020 CARES Act SBA Debt Relief program.
According to Rich Jackim, Managing Partner of Jackim Woods & Co, the extension includes significant benefits that provide buyers with powerful incentives to acquire a business in 2021, including:
- Six months of payment forgiveness for SBA 7(a) loans closed after February 1, 2021, and before September 30th, 2021. This includes principal and interest up to a maximum of $9,000 per month. That’s a $54,000 benefit to buyers.
- The SBA will waive the guaranty fee that must be paid by borrowers. This fee is typically around 3% of the loan amount and will now be zero for loans closed before September 30th, 2021. That’s an average saving to buyers of approximately $4,500.
- The SBA is increasing the amount of loan guarantees to lenders from 75% to 90%. This will decrease the risk to lenders and help ensure liquidity for deal financing.
Jackim urges buyers who want to take advantage of the extension to learn from the mad rush to meet last year’s deadline. It required tremendous coordination between sellers, buyers, counsel, intermediaries, and lenders. “The lesson buyers learned last year is not to procrastinate and try to close at least 30 days before the deadline to accommodate potential delays,” says Jackim.
What does this mean for sellers? If you are thinking of selling your business, now may be the right time despite the pandemic. In addition to record low interest rates, the SBA Payment Forgiveness Program provides buyers with extremely low financing costs. Last year we sold two businesses for over asking price because the buyers were able to afford to pay more due to the 2020 SBA Payment Forgiveness Program. Once the pandemic is under control, it is unlikely buyers will have access to the same generous funding they have today.
To learn more about taking advantage of the 2021 SBA Payment Forgiveness Program contact Rich Jackim at 224-513-5142 or at rjackim@jackimwoods.com.
