Thanks for asking! Questions from our 504 Webinars came rolling in, so we’re posting the top questions here on our JRB Website News Ticker. We’ll post each Q&A early in the week following each JRB 504 Webinar. Missed a Q&A? Not to worry. They’re archived on the JRB eBulletins Website Page. Check ’em out. And keep those questions coming.

Q&A: JRB 504 WEBINAR JUNE 4, 2020

Q: Without knowing how long the pandemic will last, how will we know when/if borrowers will be able to make payments?  (If we knew, would we be making SBA loans?

 A: While we might not know when the borrower will resume making payments, we can exercise some judgment, based on our knowledge of the local market and taking into consideration the industry and the other credits factors discussed in this webinar.

 Q: We sent a new 504 loan application to the SLPC. The borrower already had a PPP loan. SBA made us amortize the PPP as if none of it was forgiven and it all had to be paid back in two years. That made cash flow very tight. What’s the right way to amortize it?

A: We’ve seen only a limited number of such cases and our experience varies. It makes sense that it is the outstanding balance that should be amortized regardless of pay downs or balances forgiven. And the most conservative way is to assume the term and the rate of the PPP loan. That might result in a cash flow deficit. If so, we underwriters will have to address it.

 Q: If receiving a PPP loan is an acknowledgment of an adverse change, is receipt of PPP proceeds sufficient to address the NAC?

 A: Not necessarily. Getting a PPP Loan shows there was a need for those funds when the borrower applied. But for your NAC finding, you need information on the business’s current financial situation (open, partially open, still closed), cash flow, how the PPP Loan has been spent – all the factors we discussed in the webinar.