Took Out a Small Business Loan During the Pandemic? You May Need to Start Paying It Back

Make sure you know what payments you're liable for.

While the shutdowns that happened early on in the COVID-19 pandemic impacted businesses as a whole, many small businesses took an exceptionally large hit. And given the choice between racking up loads of debt on their credit cards or borrowing money, many small business owners went the latter route.

Some small businesses were eligible for PPP loans during the pandemic, and those were largely forgivable. But not all small business loans issued at the start of the pandemic fell into that category.

It's estimated that almost 3.8 million small business owners took out Economic Injury Disaster Loans (EIDL loans) averaging about $100,000 apiece, according to the Small Business Administration. And unlike PPP loans, EIDL loans do need to be repaid.

In fact, if you took out an EIDL loan, the time to start repaying it may be none other than now. That could be a problem, though, if your business is struggling financially. And that's unfortunately the case for a lot of smaller operations that have yet to fully recover from the blow the pandemic dealt them.

A tough situation all around

EIDL loans were designed to serve as an affordable means of borrowing for small businesses owners. These 30-year loans came with a relatively reasonable interest rate of 3.75% and were eligible for several years of deferred payments.

But at this point, payments under these loans are starting to come due. In fact, as of late January, around 2.6 million small businesses were due to make their first loan payments.

The problem, though, is that many small businesses haven't managed to recover from the financial hit they took during the pandemic. Let's remember that over the past couple of years, small operations have had to contend with factors like supply chain backlogs and inflation. In fact, a good 23% of small business owners recently reported that supply chain disruptions had a significant impact on their business, according to the National Federation of Independent Business.

So all told, many small business owners are now in a tough spot. They have to make good on their loan payments, but they're not in a strong enough financial position to start taking on that added expense.

Know what you owe

If you took out an EIDL loan during the pandemic, now's a good time to review your loan documents thoroughly to see when your repayment window begins, and how much money you're liable for per payment. You'll then need to reconcile that with your bank account data to see if you can manage those payments.

If you can't keep up with your loan, there are options -- but not all of them are good ones. You can declare a hardship and make partial payments of 10% of your regular monthly payments for up to six months. But interest will still accrue on your loan during this time.

You may also have to look at filing for bankruptcy if your business is struggling financially and your EIDL loan just isn't payable. But loans of a certain amount may not be dischargeable in a bankruptcy. And so ultimately, you may need to consult an accounting professional, or even an attorney, if you're facing a giant loan you can't repay and you don't expect your situation to improve anytime soon.