Many small businesses find themselves struggling as they navigate through the changing economy during coronavirus. One option for helping to improve your cash flow and protect your credit is to get a loan deferment or forbearance. Both options allow you to stop making loan payments for a period of time while you help your business get back on track.
Deferment vs. Forbearance
You should be aware that deferment and forbearance are two different processes. Both options allow you to postpone your monthly loan payments, but if you want to defer payments, generally you have to qualify. During deferment you are considered in compliance with loan terms and the lender has simply eased those terms to help you through a difficult time. If you don’t qualify for deferment, you can request forbearance. With forbearance, you generally are considered in default of loan terms and the lender is agreeing not to take legal action against you for a period of time hoping you can get back into compliance.
Credit Card Forbearance
Credit card forbearance occurs when your credit card issuer agrees to provide relief by allowing a reduction in your interest rate, payment amount, or allowing you to skip payments altogether.
A benefit of forbearance is that there is (usually) no consequence for your credit report, but you have to make regular interest payments. Keep in mind that your credit card account will stay at whatever status it was before the forbearance began. So, if you were delinquent on an account before, you will still be shown as delinquent during forbearance.
SBA Loan Deferment
There is a possibility that your bank will allow you to defer payments for a short period of time. This help is offered on a case-by-case basis and you are required to reach out to them directly to discuss available options.
Keep in mind, if you have an SBA 7(a), 504, or Microloan in regular servicing status (or you get one before September 27, 2020) the SBA will automatically pay 6 months of principal, interest, and any associated fees.
Paycheck Protection Loan Deferment
If you got a Paycheck Protection Program (PPP) loan, no payment is required for six months, but interest will accrue. Payments on Economic Injury Disaster Loans (EIDLs) can be deferred for up to a year, but payments accrue.
How much will it cost me?
Most deferred loans will continue to accrue interest. Since the loan will take longer to pay off, that additional cost will affect your bottom line. On a small loan that may not be a big deal but on large loans the additional cost could be significant. You’ll want to know how that will affect your profitability so knowing your numbers will be critical.
What if you are still struggling with debt even after forbearance?
If you are struggling with unsecured debt and don’t know if loan deferment or forbearance is right for your business, contact American Finasco to help you understand and navigate all your options for unsecured debt. Our experts will help find a solution that will put you on the path to a better financial future. Contact us today to get your business on the right track! Visit Contact Us and complete our Online Form for a free consultation or call (800) 299-2909. We look forward to speaking with you.