It's Your Business: Time to pay back disaster loans begins for 3.9M small businesses, agencies
Over the past few years, many small businesses hit hard by the pandemic took advantage of the stimulus programs from the U.S. Small Business Administration (SBA), providing a lifeline for those unable to survive the impact of the economic downturn on their business. One of the more popular programs was the Economic Injury Disaster Loan program (EIDL), which provided low interest loans to help with working capital needs. The program allotted more than $351 billion for 3.9 million small businesses and not-for-profits.
The EIDL program enabled businesses to finance loans up to $2 million for 30 years at 3.75% interest terms, which is positive given where interest rates are today. One item that also was popular was the initial deferment of payments on the EIDL for up to 18 months, which was later extended to 30 months in early 2022 for loans approved in 2020, 2021 and 2022.
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Now that those deferment periods are ending, many small business owners are learning that the interest on those loans has continued to grow during the deferment period. This is all outlined in the EIDL loan package that would have been executed, but many small business owners were unaware that was happening, leading to an increased payment — some experts are estimating the increase in the loan payment will be 10% higher than the initial payment expectation. The first payments for 2.6 million businesses will begin this month. According to the SBA, they believe the accrued interest of all EIDLs sits between $32 billion and $34 billion.
If your deferment period has ended, you are responsible for monthly payments in the SBA’s Capital Access Financial System (CAFS) where you should have an account set up to monitor your loan status. While there are hardship deferment options, available through the SBA, these have some fine print business owners need to be aware of. First, you can request a 6-month hardship accommodation. After the initial 6 months, borrowers can request only one additional 6-month hardship accommodation. Second, during the 6-month accommodation period, borrowers will still have to make a payment on their loan each month. This payment varies dependent on SBAs hardship standards and requires a minimum payment of 10% of the actual payment.
It is also worth keeping in mind that even if a business closes, the borrower is still responsible to make the payments on the loan. If your loan was $200,000 or higher and you are a 20% owner (or more), then you would also have had to sign a personal guarantee. If a borrower is ultimately unable to repay the loan, the SBA notes that the only way to get rid of the debt is to have it discharged through bankruptcy. If you have questions about your loan, you can contact the SBA at 833-853-5638 or email at disastercustomerservice@sba.gov.
If you have general questions for our team, feel free to reach us at 812-330-6261.
Steve Bryant is executive director of the Gayle & Bill Cook Center for Entrepreneurship at Ivy Tech and regional director of the South Central Small Business Development Center.
This article originally appeared on The Herald-Times: Federal loan payback begins for 3.9M small businesses, agencies
