If you are a business owner worried about how, or if, you can make your next loan payment, you are certainly not alone. With the COVID-19 outbreak, these are tumultuous times and like you, there are countless business owners facing the challenge of how to prioritize business expenses when cash flow is drying up. For most business owners, after payroll, their next largest payment is to their lender(s). Fortunately, the government and lenders have shown a willingness to work with business owners on their loans. The possible solution may depend on the type of loan you have. Below are three of the more common commercial real estate loans and depending on which type you are dealing with, we have provided what we consider to be possible options that may help alleviate some of your pain in these trying times:
- SBA loans
- For 7(a) business loans
- Lenders may defer payments up to 6 months without SBA approval
- However, if the loan has been sold on the secondary market, meaning the lender that closed your loan is no longer servicing your loan, then the lender may make a deferment up to 90 days but anything longer would require the approval of the purchaser of the loan.
- For a 504 loan
- The CDC can defer the loan for up to 6 month or up to an amount equal to 20% of the loan without SBA approval.
- For 7(a) business loans
- CMBS – Depending on the loan servicer, payments have been deferred from 3 to 6 months. A borrower will be working with the CMBS servicer to request the deferment, but the lender will make the final decision on the length of deferment.
- Conventional Loan – While there is no standard on deferment for conventional loans, the best practice is to have an open dialogue with your lender. Most lenders understand the struggles that business owners are facing in light of the COVID 19 virus.
The key to any of the above possible solutions is to initiate the conversation with your lender as soon as possible. In the past you may have been advised to miss a payment or two to get the bank’s attention about the difficulty of your situation. However, we believe that at this time most if not all lenders are aware of the issues business owners are facing and that starting a conversation with your bank early will show good faith. Communication is key. Please keep in mind that any deferred payments are not forgiven completely but will simply be postponed until a later date. Also, during any deferment period interest will likely still be assessed and due either during the deferment period or added to the end of the loan as additional payments. If you feel uncomfortable reaching out to your lender regarding deferment or you would like someone with experience in these matters speaking to your lender on your behalf, please feel free to contact us at the Patel Law Group.