It’s February 2020. Your Chattanooga business is thriving thanks to the uptick in the economy in 2019, and this year looks to be one of possibility and growth.
Then, March 2020 rolls in. A rampant virus spread brings lockdowns nationwide, and your business begins to suffer… dramatically. In swoops the SBA offering a glittering ray of hope in the form of an EIDL loan, which you take because you need to make payroll and keep your business floating.
You make it through…
Only to run into supply chain issues, staffing shortages, and a bloating economy swiftly moving toward recession, and you’re scrambling again to keep up with things.
Now… cue your first EIDL loan payment due date this month. How do you make payments? What happens if you can’t pay it? What are your options?
Let’s take a look.
Taking care of EIDL repayment
Your COVID EIDL monthly payments begin 30 months after you first received the funds (see your original loan note for that date).
Thankfully, the SBA is tech-forward and allows you to set up an online account to keep an eye on the status of your loan as well as post payments through it.
Create your account in the SBA’s Capital Access Financial System (CAFS) using your loan number (not your application number) – it should be on any of the SBA statements or letters you’ve received.
As far as payments, you can opt to set up recurring payments, do a one-time payment, or even set up a bill pay option through your bank.
And you’ll even get email reminders (oh joy!).
What if I’m struggling with EIDL repayment?
Though payment setup is easy, actually making the payments might be hard… financially speaking. And you’re not the only one in that boat. With 3 million other businesses needing to make payments this month, it’s a guarantee that a bunch of them aren’t prepared to start repayment either.
Now, if you’re wondering about EIDL loan forgiveness (since the PPP loan had a forgiveness option), the SBA’s current stance is NO – and this is unlikely to change. These EIDLs have been in place for many years before this pandemic and were only expanded to accommodate these circumstances.
You can request a 6-month hardship deferment but you’ll still need to pay 10% of the scheduled amount. And interest will continue to accrue.
Now, if you decide to just keep doing business as usual and not make payments or any arrangements, you’ll fall into delinquency which will mean late fees and derogatory remarks on your credit score.
Go longer than 120 days in non-communication with your lender and nonpayment of your loan, and your loan will fall into default status where the consequences are more severe. Your collateral will be at risk of being seized and sold to pay things back. Your credit score will take a bigger hit. And the SBA will issue a demand letter and move to take legal action against you to collect what’s owed.
EIDL repayment options when you can’t pay
There are always options when you’re in the EIDL repayment struggle. They include:
Talk to your lender. A common tendency when people can’t pay something is to avoid dealing with it. But that really never helps. Regular communication with your lender is a good faith sign to them that you’re a team player in this debt repayment process. It gives you a chance to explain what’s going on and opens the door to possible restructuring of your monthly payments.
Make any kind of payment. Offering some kind of payment is better than offering nothing. It’s a goodwill gesture and can often result in some leniency in repayment.
Review cash flow and expenses. Take a deeper look at your financials and see where you can free up some funds to make those monthly payments. There are expenses you might be able to put off for a little while in order to free up some cash flow.
Pay interest only for a time. Sometimes you just need more time to look at the bigger picture of your Chattanooga business. You can make some goals and figure out creative ways to get the money you need to make your payments (especially if restructuring reduces your payment amount for a little while). Of course, this isn’t a permanent solution.
The SBA has made it clear that they will enforce EIDL repayment and will not issue any forgiveness options on them, so finding a way to meet the demands of repayment is imperative. However, the likelihood of them taking severe recourse of action is pretty small as they are overworked and understaffed to deal with the millions of businesses in repayment mode. Still, it’s never good to just leave it up to chance and deal with the fallout later.
Even if it seems impossible right now that you’ll ever repay what you borrowed to keep your Chattanooga business thriving, there is a way forward. And if you need someone to help advise you on some steps you can take, well, we’re right here:
On your team,
John and Wanda King