November 3, 2009

SBA loan deferments

If you are a small business owner with an SBA loan and your business is being impacted by the recession or otherwise, such that you're having difficulty making your monthly SBA loan payments, consider asking your bank for a deferment.  If your bank is a Prefered Lender of the SBA (a PLP lender) it has unilateral authority to defer your SBA loan payments for a period of time.  I've been working with borrowers on deferments as of late and below are points to keep in mind:
  • A deferment is the temporary postponement of some or all of your monthly loan payments (deferred princpal, deferred interest, or deferred principal and interest).
  • The total amount deferred must be re-amortized over the remaining post-deferment life of the loan so expect your post-deferment loan payments to be a bit higher than your pre-deferment loan payments because you're making up for the missed payments over the remaining time to maturity.
  • Your bank will want to understand and document your company's need for a deferment and at a minimum, if it hasn't already done so, will want to document your loan file with a complete set of updated financial statements and tax returns for you and your business.
Tip: Be straightforward and specific regarding the factors impacting your business; the root causes behind your need for a deferment.  Formulate a turnaround plan identifying steps the business will take to improve its performance.  Provide a sound financial projection with reasonable assumptions that illustrates the ability of the business to make post deferment loan payments.      

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