My Business Cannot Pay an SBA Loan: What Are the Options?
At the beginning of the COVID-19 pandemic, businesses in South Florida and across the country could not afford to remain in business with public health lockdowns in place. In response to the growing need for funding from small businesses, the US Small Business Administration (SBA) made a range of funding sources available. Some of the funding came in the form of loans, and some in a form similar to a grant that did not have to be repaid. For many businesses that borrowed money through an SBA loan during the pandemic, those loan payments have now come due. Payments were initially deferred for a lengthy period of time, but businesses throughout Florida are realizing that they do not have the capacity to repay the loan amounts in full each month.
If your business is in this situation, you may be wondering: what are the options available? Depending upon your business’s specific circumstances, you may have multiple options available to you that include a reduction in the current required payment on your SBA loan or the possibility of a reorganization bankruptcy through which you can remain open and in business. Our West Palm Beach business law attorneys can tell you more.
SBA Loan Hardship Accommodation
If your company currently owes payments on an SBA loan — specifically a loan through the Economic Injury Disaster Loan (EIDL) program — and cannot make the monthly payments without causing financial hardship to your business, you could be eligible for a hardship accommodation.
The Hardship Accommodation Program first took effect when many EIDL loans were becoming due. At that point in time, some businesses applied for and received a hardship accommodation, while others did not even know that a hardship accommodation was an option. At the same time, some businesses were not yet required to begin repaying their EIDL loans at that point in time, and others have since experienced new financial setbacks that are making it difficult or impossible to meet the repayment terms. The SBA clarified recently that it would expand hardship accommodation options. What this means is that your business could be eligible to have payments reduced for a period of time — whether you have previously received a hardship accommodation or not.
EIDL Hardship Accommodation in Practice
What does the hardship accommodation do in practice? In short, it reduces the amount a business owes for a particular period of time. If you are approved for a hardship accommodation, the reduction in your payment will depend on whether or not you have received a hardship accommodation previously.
If you have never before received a hardship accommodation or have received only one, you can pay 10 percent of your loan amount for 6 months (and if this is your first hardship accommodation, you may be eligible for a second 6-month period of paying only 10 percent). For the third hardship accommodation, 50 percent of the payment will be due, and 75 percent for the fourth hardship accommodation.
Contact a West Palm Beach Business Lawyers Today
Any business struggling with SBA loan repayment should seek help from a lawyer to apply for a hardship accommodation. If your business is not eligible for a hardship accommodation, you can also work with one of our lawyers on a Chapter 11, Subchapter V, or other reorganization bankruptcy case. An experienced West Palm Beach business attorney at Kelley Kaplan & Eller, PLLC can speak with you today about options.
Source:
sba.gov/article/2024/01/05/small-business-administration-announces-further-action-help-ppp-covid-eidl-borrowers
