As the coronavirus continues to spread and businesses are forced to shut down to protect public health and safety, many people are facing unprecedented financial hardships. A lack of customers and profits can make it difficult to keep up with bills, including outstanding business loans. Fortunately, there are some options if you are having trouble meeting your financial responsibilities during these unstable times.
Typically, a loan provider can take legal action to reclaim the value of the loan along with any other outstanding interest, fees, and costs. This can be a lengthy process that negatively affects the business and often leads to bankruptcy. However, many lenders are making accommodations for clients so that businesses can survive this period and rebound once the crisis is over.
Business Loan Payment Options
Your best bet is to contact your lender as soon as possible, make them aware of your situation and work with them to find viable payment solutions. Remember that it is also in their best interest to find payment options. Here are just a few business loan payment options that may be available to you:
- Deferment or forbearance. With this option, you will be able to temporarily stop payments without incurring penalties.
- Loan extension. This is an agreement between both parties that allows the borrower to miss payments and have that amount tacked on to the end of the loan. As a borrower, be sure to carefully read and understand the terms and conditions of your loan so that you are aware of the criteria you need to meet in order to be eligible for a loan extension.
- Partial claim. The borrower has to prove that they have experienced financial hardship and can now begin making payments again, but can’t catch up on missed payments. Fees and missed payments are then put into a second mortgage that has a zero interest rate.
- Repayment Plan. You and the lender come to a repayment plan agreement that allows you to become current.
- Principal deferral. The monthly payments are lowered, but this also means that you are paying off less of the principal, which will eventually be due.
There are also tax breaks that will allow you to operate at a loss and other options, including selling the business that might be worth considering. Either way, there are business loan options and other solutions that are in place to help support businesses during difficult times. Learn more about your payment options so that your business can survive the tough economic time caused by the coronavirus.
What happens if I can’t repay a business loan?
Depending on your loan and lender, you may incur fees and fines. Several missed payments can lead to defaulting on the loan, which affect your credit score, limit your future financial options and lead to legal proceedings.
What do I do if I can’t pay my loan?
Contact your lender, let them know you are going to be late on a payment and discuss your options. In most cases, they will work with you to find a solution.
Can you get an extension on a loan?
While not all loans are eligible for extensions, this is a common payment solution. You can read the terms and conditions of your loan and contact your lender to see if this is an option.
If your business fails, creditors will be able to take the business assets in order to meet outstanding debts.
What are the types of loan modifications?
Forbearance (the lender temporarily stops or reduces payments), interest rate reduction, loan extension, partial claim (the borrower is not able to make up for missed payments, but is able to start payments again. The missed payments and fees are put into a second mortgage with a zero interest rate), principal deferral (the loan is modified to lower payments and the deferred principal is due later on), repayment plan (both parties decide on a repayment plan to help the borrower get current).
Face your finances head on, contact your lenders, consider financing to help get through rough periods and look at ways to cut costs.
Your business assets will be seized and your assets may also be vulnerable. With certain loans, you may have to continue to pay on the loan and cover the costs of legal fees.
What is considered financial hardship?
Financial hardship is subjective. The lender will look at your complete financial picture and decide whether you are making a reasonable request based on the facts.
Yes, this is one way to try and mitigate losses.
What happens if you default on a business line of credit?
It depends on whether you have an unsecured, secured, or secured SBA loan.
How do you write off business losses?
Include your losses in your tax return and you may be able to get a refund to help your business stay open.
Be sure to include your losses on your tax return because you may be eligible for a tax return or business tax credits.
What counts as business loss?
A business loss is when your expenses exceed your earnings. Essentially, you are spending more than you are making.
The IRS only allows businesses to claim losses for 3 out of five tax years. If you exceed this number, your business will no longer be considered a business.
A tax loss carry forward means that businesses can carry over a tax loss into upcoming years. This helps to reduce tax payments.