Small businesses already battered by inflation are struggling to repay COVID-19 catastrophe loans
Even as the US economy continues to recover from the devastating effects of COVID-19, many small businesses face another serious financial challenge: paying back the federal pandemic relief loans they received to survive the crisis.
Nearly 4 million small business owners who received such “disaster” loans now have to pay them back – a burden for many employers given the ongoing scourge of inflation, the growing risk of recession and the risk of COVID-19 flare-ups in the winter.
“These were Federal Disaster Program loans, and they have a 30-year term and a low interest rate, which made them attractive to a lot of small businesses,” Ruth Simon, a senior special writer at the Wall Street Journal, said in an interview with CBS. Morning.
According to the newspaper, the first payments on 1.2 million catastrophe loans are due this month, while another 1 million are due in January; small businesses began repaying more than 400,000 loans in October and November.
The Small Business Administration’s COVID-19 Economic Injury Disaster Loan (EIDL) program was established in 2020 to help smaller employers and nonprofits stay afloat during the pandemic. The 30-year loans have a fixed interest rate of 3.75% for small businesses and 2.75% for nonprofits.
Unlike loans granted under the Paycheck Protection Program, which were forgivable as long as companies met certain requirements, grants received under the EIDL program must be repaid to the government.
The SBA has pushed back loan repayment deadlines on the loans multiple times, most recently in March when it announced a third extension that gives recipients 30 months from the date of issuance to begin making payments. However, interest continues to accrue during the deferral period, which means that after 30 months the amount owed is 10% more than the original loan.
“The problem is that many small businesses are not where they would like to be now that the paybacks are due,” Simon said.
One option the SBA is offering to small business owners who are unable to make payments on their disaster loan is the emergency shelter plan, Simon noted.
“They let you make reduced payments for six months, and then you can also apply for another six-month extension,” she said. “That’s what the SBA is offering right now. They say they continue to look into the issue.”