As 2020 turned into a year of social and economic lockdown, the United States government created multiple forms of economic stimulus to aid businesses through a global pandemic. Among these assistance plans is the Economic Injury Disaster Loan (EIDL) program, which was declared effective on March 1, 2020.
These loans were designed to get small businesses through an extended shutdown in the pandemic, which the initial guidance determined would be resolved within twelve months. We all know how that ended; we’re writing about the topic over a year later.
Given the consistently changing landscape of re-opening, economic stimulus, and the needs of affected businesses, the SBA has extended the deferment period and other disaster loans. Read below to see how this might impact your business and any existent or upcoming loans.
SBA Defers EIDL Payments
Like much of the guidance and updates that has occurred with funding for small businesses, the most important message to know is that these changes by the SBA are solely designed to help organizations who took EIDL loans.
The impact of the pandemic has been far greater than initially anticipated, especially to smaller brick-and-mortar businesses. Business owners and financial teams have observed that staying on top of dates, funding options, and regulations is one of the best ways to leverage these grant options.
Here are the key takeaways from the updated verbiage:
- All SBA disaster loans made in calendar year 2020 will have first payment dates extended by 12 months from their original due date.
- All SBA disaster loans made in calendar year 2021 will have first payment dates extended by 6 months from their original due date.
- Borrowers will automatically resume payment on any deferred loans beginning March 31, 2022 unless they voluntarily make payments within the deferral period.
- Interest will accrue on the balance of all loans throughout the duration of the loan. This may affect your decision to defer, or extend all the way until the end of the new grace period.
For each loan you have, it is worthwhile to consult with a payroll or accounting professional. No loan or balance sheet is the same, and your financial outlook will predicate the decisions you make. Arming yourself with a working knowledge of this legislature will allow you to have the best conversation with all parties who help you reach your decision.
PPP Loans and Updated EIDL Impact
Many small businesses were able to get organization-saving Paycheck Protection Program loans – some even got multiple rounds of funding. PPP loans for qualified individuals who used them within the designated period have been forgiven or are in the process of being forgiven. However, there have been some instances in which the loans were not fully forgivable or the status was in question heading towards the start date on repayment.
The EIDL loan deferral technically covers all pandemic disaster loans, so in the event a PPP loan is converted to repayable debt, your business’s start date is similarly pushed back. Make sure to discuss the circumstances and interest rates with your lender and/or an accountant if you aren’t sure what you need to pay in full. PPP loans have a wide range of forgiveness and it is a business-by-business assessment.
Sole Proprietors and Individual Contractors
An area of confusion for the first round of EIDL and PPP loans was how sole proprietors and individual contractors fit into the qualifications for potential aid. Due to this uncertainty, some people did not take funds to cover single-person businesses or were only able to get them at a later date. Updated EIDL and SBA guidance has allowed these funds to be distributed, but their initial dates were not all congruent with the start and end dates of the 1st and second round of loans.
With the additional 12 month deferment period, these loans are now synced to the scheduling of the extended period – an end date of March 31, 2022. Similarly, these will continue to accrue interest on the outstanding balance of your loan, which might have far more significant practical impact on contractors and one-person organizations. Please make sure to calculate your interest and how it works vs. your individual business budget. If you can afford to make payments, you may not want to put them off for the sake of doing so while accruing more interest.
Get the Right Information to Make Informed Decisions with PayTech
At PayTech, we have decades of experience helping businesses optimize their payroll and financial decisions for success. We know that in a time of uncertainty, you need to be able to focus on your product and team, and may not be able to stay up to date with financial best-practices or policy updates; that’s why we’re here. We’ll answer all your questions (without the hourly rate for a phone call) and help you set your business up for financial success.
If you’re looking to protect your business and its assets with professional expertise designed for small and medium-sized businesses, please reach out to us today – we’d love to work together for a brighter future.