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How to defer a small business loan during the coronavirus
Most lenders are pausing repayments for business facing hardship due to COVID-19.
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Business loan deferment is a type of financial assistance that pauses repayments when your company is facing a temporary financial setback, usually for one to three months. Under normal circumstances, business loan deferment is only available on a case-by-case basis. But during the coronavirus outbreak, many lenders are offering all business customers the option to put their loans on hold.
Deferment can help cut back on expenses. But you may want to combine it with other types of financing if you're struggling to stay open. You likely won't be able to cover your operating costs along with your monthly loan repayments.
How does business loan deferment work during COVID-19?
Many business lenders are offering between 60 and 90 days of deferment to businesses that have been impacted by COVID-19. Others offer deferment on a case-by-case basis. This means that your lender will look at your business's finances and determine how long to defer your loans.
While your repayments are on hold, interest will continue to add up — unless your lender also offers 0% interest deferment. The interest that adds up gets added to your loan balance when repayments resume, in a process called interest capitalization. This means you'll pay more in interest.
Business loan deferment vs. forbearance
Technically, there is a slight difference between deferment and forbearance. Under deferment, lenders typically extend your loan term by the number of months you pause your repayments. With forbearance, you keep the same term. This makes forbearance a more expensive option than deferment.
However, many lenders also use the terms interchangeably — especially during the coronavirus. You may want to ask if your loan term will be extended before you sign up. This allows you to more accurately predict your repayments after they start again.
How to request business loan deferment
Since business loan deferment is less common than say, student loans, there usually isn't a formalized application process. In most cases, you'll need to call in to get started on your application.
But this could change. Lenders experienced such a high volume of calls at the beginning of the coronavirus outbreak that they asked borrowers to get in touch by email. Others offered assistance online, which borrowers could access through their online accounts.
Most lenders have a coronavirus resources page, which you might want to visit before you pick up the phone. You can often find a link from the lender's homepage or business loans page.
Will I need any documents?
When you apply, you'll likely need to provide proof of hardship, which can include bank statements, profit and loss statements and other financial documents. Having these on hand can speed up the process.
How COVID-19 deferment works with 5 lenders
Here's how deferment works with these five business loan providers.
| Lender | Deferment length | How to apply | More info |
|---|---|---|---|
America First Credit Union | 60 days | Call 800-999-3961 | |
Citizens Bank | 180 days | Call 800-862-6200 | |
CVNB Bank | 90 days | Call 800-999-3126 | |
Fifth Third Bank | 90 days | Call 877-534-2264 | |
OnDeck | Varies by business | Call 888-994-6603 |
How SBA loan deferment works during the coronavirus
The Small Business Administration (SBA) is automatically deferring all repayments for several of its noncoronavirus business loans under the SBA Loan Debt Relief program established by the CARES Act. These include SBA 7(a) loans, 504 loans and microloans. Since it's automatic deferment, you don't have to apply.
It works a little different than other types of deferment. Under this program, the SBA covers both principal and interest repayments for six months. So your loan will actually be less expensive after repayments began.
It also applies to new loans and extends deferment on SBA loans that are currently in deferment. In other words, everyone with an eligible SBA loan can benefit.
How SBA coronavirus loan deferment works
The SBA's COVID-19 assistance programs also have deferment baked into them. The Paycheck Protection Program defers repayments for six months after the loan is issued — meaning borrowers who qualify for forgiveness never make a repayment.
The Economic Injury Disaster Loan program, or EIDL, defers repayments for until 2022. If you took out an EIDL in 2020, your first payment is due 24 months after you received the funds. If you took out an EIDL in 2021, your first payment is due 18 months after you received the funds.
Can I defer a new business loan?
It's possible — if you apply for a loan that's built to assist businesses struggling during the coronavirus. This includes state and local government loan programs, loans through nonprofits and coronavirus loans from business lenders.
But otherwise, deferment on a new loan generally isn't an option. You likely won't get approved for a regular business loan if you can't afford your first few repayments.
How much does business loan deferment cost?
Deferment will make your loan more expensive each month and in total. Especially if your lender doesn't extend your loan term. Follow these steps to calculate how much interest will add up during deferment.
- Divide the APR on your business loan by 365. This gives you the daily interest rate.
- Multiply the daily interest rate by the remaining balance left on your loan.
- Take the result from step 2 and multiply it by the number of days you expect to defer your loan.
- Take the result from step 3 and add it to your loan balance. If your lender extends your loan term, also add the number of months your loan will be in deferment.
- Use the calculator below to see how much you’ll pay in interest each month and in total by deferring your loan.
- To compare it to the cost of your loan without deferment, enter your current loan details to see the difference.
Business loan calculator
See how much you'll pay
| Your loan |
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| Loan amount |
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| Loan terms (in years) |
| Interest rate |
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Fill out the form and click on “Calculate” to see your
estimated monthly payment.
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Based on your loan terms…
You can expect to pay back
$
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This breaks down to…
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in
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What to consider before deferring a business loan
Deferring your loans may be helpful when you need to cut costs in the short term. But consider how it'll impact your business before you apply.
- How long do I need assistance? If you won't be able to afford repayments for more than a few months, you might want to ask about other options like lengthening your term to reduce repayments.
- Can I afford the new repayments? Deferred loans typically to raise your monthly cost, especially if your term isn't extended. Make sure that new cost fits into your typical business budget.
- Will it show up on my credit report? Some lenders are reporting deferred repayments as current while others will report it as delinquent. If it's delinquent and you're a guarantor on the loan, it can lower your credit score.
- Are there any fees? Some lenders might also charge a service fee for deferment. Ask if there are any additional charges before you apply. If there are, ask if you have to pay it up front or if it will be added to your loan balance.
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Bottom line
Deferment can reduce your monthly budget by several hundred dollars. But it likely won't make enough of a difference if your business is really struggling. The federal government has several coronavirus assistance loan programs, including the PPP — which offers up to 100% forgiveness depending on how you spend the funds.
Many state and local governments are offering low-cost business loans and grants. And grants are also available through private organizations, usually by industry. Visit our guide to business loans during the coronavirus for more details about on your options.
Frequently asked questions
Do I have to make interest payments during deferment?
No, deferment covers both interest and principal repayments. However, consider paying off interest if it's an option. That can help you avoid interest capitalization, which can make your loan much more expensive.
Can I get a new loan if I have a loan in deferment?
Under normal circumstances, having a loan in deferment is a sign that you likely won't qualify for more financing. But during the coronavirus outbreak, that doesn't apply. Having a loan in deferment shouldn't affect your application to coronavirus assistance programs, like the Paycheck Protection Program.
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