Millions of businesses are worried about their finances after pandemic loan repayments began in October, according to The Wall Street Journal.
Four million businesses that received a total of $390 billion in COVID-19 disaster loans have started paying them back; however, inflation, supply-chain issues and a tight labor market have left businesses more financially vulnerable than previously expected, according to the WSJ. The Small Business Administration (SBA) first allowed borrowers to defer their payments by 12 months, then opted to extend the period twice to 30 months, ultimately deciding against allowing the maximum deferral of four years.
Tony Wright, who borrowed $150,000 from the SBA for his digital marketing agency, told the WSJ that the loan “has certainly helped us to survive and avoid layoffs,” but “the payback is coming at a time when we are seeing a steeper decline in business than during the pandemic.” (RELATED: EXCLUSIVE POLL: Over 40% Of Small Business Owners Give Biden Failing Grade On Helping Main Street)
“Maybe this isn’t the best time to have everyone start paying back,” he continued.
The loans, awarded at fixed interest rates of 3.75% for small businesses and 2.75% for nonprofits, were first due in October, according to the WSJ. Another wave of 1.2 million borrowers is expected to begin payments this month, and another million will begin payments in January.
Courtney Cowan, owner of Milk Jar Cookies in Los Angeles, believes the loans were “cheap money,” as she was able to cover operating expenses, the costs for a second cookie shop, the services of a franchise consultant, upgraded packaging and a new website, according to the WSJ. Cowan told the WSJ that she thought the loan would help business, and believed she would be in a better financial position today.
NEW: In FY22, SBA reached nearly $43B in funding to small businesses, providing more than 62,000 traditional loans through 7(a), 504, and Microloan lending partners and over 1,200 investments through SBA licensed Small Business Investment Companies. More: https://t.co/Oi7oDikzNU
— SBA (@SBAgov) December 13, 2022
Borrowers who are experiencing “short-term” financial hardships will be able to request payment reductions, the SBA told the WSJ. The temporary payment reductions will still require at least 10% of the amount due, or a minimum of $25, for six months.
One-third of borrowers made payments during the deferral period, the SBA told the WSJ. Some that did not pay were “surprised” that they had accrued interest during the defer period.
“They did say it was a low-interest loan. They didn’t say that it would start immediately accruing interest,” Kristin Malara, a provider of at-home child-care services, told the WSJ.
The SBA did not immediately respond to the Daily Caller News Foundation’s request for comment.
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