Even as the U.S. economy continues to heal from the devastating impact of COVID-19, many small businesses are grappling with another serious financial challenge: repaying the federal pandemic relief loans they got to help them survive the crisis.
Nearly 4 million small business owners who received such “disaster” loans are now required to pay them back — a strain for many employers amid the ongoing scourge of inflation, growing risk of recession and risk that COVID-19 will flare up as winter approaches.
“These were loans made from the Federal Disaster Program and they have 30-year terms and a low interest rate which made them attractive to many small businesses,” said Ruth Simon, a senior special writer at the Wall Street Journal, in an interview with CBS Mornings.
According to the paper, the first payments on 1.2 million disaster loans are due this month, while another 1 million are coming due in January; small businesses started paying back more than 400,000 loans in October and November.
The Small Business Administration’s COVID-19 Economic Injury Disaster Loan (EIDL) program was set up in 2020 to help smaller employers and not-for-profit organizations stay afloat during the pandemic. The 30-year loans carry a fixed interest rate of 3.75% for small businesses and 2.75% for nonprofits.
Unlike loans obtained under the Paycheck Protection Program, which were forgivable as long as businesses met certain requirements, aid received through the EIDL program must be paid back to the government.
The SBA has deferred loan repayment periods for the loans multiple times, most recently in March, when it announced a third extension giving recipients 30 months from the date of origination to start making payments. However, loans continue to accrue interest during the deferment period, which means the amount owed after 30 months will be 10% higher than the original loan.
“The issue is many small businesses aren’t where they would like to be now that the repayments are coming due,” Simon said.
One option the SBA provides to small business owners who are unable to make payments on their disaster loan is the Hardship Accommodation Plan, Simon noted.
“They’ll let you make reduced payments for six months, and then you can also request another 6-month extension,” she said. “That’s what the SBA is offering right now, they say they’re continuing to look at the issue.”
