Here’s what you need to know about the extended deferment of payments

By early 2021 the SBA had provided more than 3.7 million U.S. businesses with loans through the COVID-19 Economic Injury Disaster Loan program (EIDL), more than 6,500 of them in Vermont. COVID funding for businesses is now closed, but the SBA has recently extended the deferment of principal and interest loan payment for an additional six months. Now the first payment is due 30 months from your loan’s inception.

The SBA made the following announcement in March 2022:
“…Administrator Isabella Casillas Guzman, head of the U.S. Small Business Administration and the voice for America’s 32.5 million small businesses in President Biden’s Cabinet, directed the Agency to provide additional deferment of principal and interest payments for existing COVID Economic Injury Disaster Loan program Borrowers for a total of 30 months deferment from inception on all approved COVID EIDL loans.” 
 
What does this mean to you if you are a small business owner with an outstanding EIDL loan?

The most important point to keep in mind is that if you choose to use the longer deferment period, remember that interest is accruing from the date you signed the original loan documents. And, if you pay back all or part of the loan before the deferment period ends, you can completely or partially stop interest from accruing.

VtSBDC advisor Debra Boudrieau urges small business owners to be prepared and to evaluate the impact this will have on your business.

“Understanding your debt management will help you make intelligent decisions for your company,” says Boudrieau. “If you read the fine print and determine the impact, you won’t be surprised about the accrued amount of interest you owe in addition to the loan repayment. The federal government will not forgive this loan, and it’s crucial that small business owners plan accordingly.”

What should you do next?

Boudrieau explains that there are easy, organized steps to understanding your debt, interest accrual, and impact from waiting the total deferment period before beginning the monthly payments. There are specific instructions on how to set up your payment process with the SBA so that you can see the exact amount of the interest that continues to accrue on your EIDL loan. Though monthly interest payments are included in the additional six-month deferment, TOTAL interest is STILL accruing, and you should understand what that amount is and weigh that against beginning your payments as soon as possible if you are able. 

First, visit the link to the VtSBDC 22-101 instructions and follow the instructions in the Federal Program section on EIDL both 1.3 and 1.5. These two steps explain how to set up your account in both the SBA’s CAFS (the Capital Access Financial System allows you to monitor your loan and see the interest and principal amounts) and at Pay.gov (which is the payment system for Federal loans you will be using when you start paying):

Second, once you understand the impact of the extended deferred payment period you can decide whether to use the extension or whether you want to make full or partial payments during the deferment period.

Also, remember that there is no pre-payment penalty for the EIDL so if you have not used the loan proceeds, you can consider a pre-payment of some or all of the loan.

“As VtSBDC advisors, we encourage our clients to know what questions to ask, and to access available information,” concluded Boudrieau. “Expanding your knowledge and understanding helps you address the issue calmly and directly which leads to making the best decisions for your business.”

Finally, we recommend that you update your total debt obligations using the Debt Assessment (Self-guided debt calculator) and capture any debt obligations from 2020 (both from the CARES ACT and other sources that were deferred, and add new debt from 2021 and 2022 as necessary after updating the debt assessment. 

Looking for more? Check out our resources page or request advising! 

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