In today’s email we have updates on the following:

  1. Businesses with SBA- Covid EIDL Loans and Payback
  2. Downtown Façade Loan Program
  3. Main Street Bounceback Grant
Businesses with SBA - Covid EIDL Loans and Payback
Time is moving forward since the beginning of the SBA – Covid Economic Injury Disaster Loans (EIDL) program and some of the earliest EIDL loans are approaching nearly 24 months since these loans were issued. Recently, I have had client’s contact me with questions about paying back the EIDL loans. There seems to be some uncertainly and confusion on several aspects of the payback of SBA – Covid EIDL loans. Given the questions I recently received, I am sure many of you also have the same questions. Therefore, I am providing this update to share what I learned and provide some insight and guidance to SBA Covid EIDL loan recipients regarding payback of the loans.

Below are some the key components regarding SBA Covid EIDL Loan Payback.
 
  • SBA EIDL loans have a 30-year (360 month) payback from the date the loan was deposited into your account. EIDL Loans have an interest rate of 3.75%.

  • Interest accrues from the day the loan is deposited into your bank account. This means if you are not making any payments on your loan right now, your outstanding balance is growing each month by the unpaid accrued interest. It is my understanding that in essence what is happening with the deferral is the amount of the unpaid interest for the month is added to the principal balance and the next months interest is calculated based on the new outstanding principal plus unpaid interest amount.  
 
  • The SBA originally allowed a 24-month deferral of payments both interest and principal on SBA Covid EIDL loans.  Then on March 15, 2022, SBA granted an additionally 6 months of deferral so one can defer payments up to 30 months in total.

  • The SBA applies any payment received first to any interest outstanding and then to principal.  

When the SBA issued the EIDL loan to borrowers, the SBA calculated and provided a statement to the borrower with a monthly payment amount for the payback of the loan. This monthly payment amount was calculated based on 30-year (360 month) payback/amortization of the loan at a 3.75% interest rate assuming that the borrower would begin paying the loan back immediately starting one month after the loan was received. If the borrower did not start making payments right away but rather deferred payments, then that payback amount the SBA calculated will not be enough to pay the loan back in 360 months. This is because the unpaid interest each month is being added to the original loan amount increasing the total amount that needs to be paid back. 

When the borrower begins to make monthly payments, the SBA payback structure is automatically setup for the monthly payment that the SBA calculated and provided to the borrower when the loan proceeds were received. In addition, the terms of the loan are such that the entire loan must be paid back within 360 months from the time the loan was received. This is fine if the borrower began making the SBA calculated monthly payments immediately because the loan will be paid in full at the end of the 360-month loan period. However, if payments were deferred for a time and then later monthly payments are made at the original SBA calculated monthly payment amount, at the end of the 360-month loan period the borrower will have a single large final payment due. In the lending world this is referred to as a “balloon payment”. Right now, the SBA is fine with receiving the loan payback under this scenario with a balloon payment at the end. However, as a borrower, I think it is important for you to understand the effects and costs of deferring payments and then making the SBA calculated payments and a final balloon payment. 

The best way to illustrate the effects of deferring payment is to look at an example. Let’s assume a borrower started with a $100,000 SBA Covid EIDL loan. Below we show and compare the following three payback scenarios: 
 
  1. No deferral and begin to pay the loan back starting the first month after the loan was received
  2. 30-month payment deferral and then pay the loan back at the SBA calculated monthly payment amount with balloon payment at the end. 
  3. 30-month payment deferral then recalculate the monthly payment to repay the loan back in equal monthly payments over the remaining 330 months of the 360-month loan period.  

Key things to note in the comparison:
 
  • Note the overall interest cost from each of the scenarios.
 
  • Note the amount of the balloon payment that would be needed if you defer 30 months then make the SBA calculated monthly payment. You would still owe more than 40% of the originally loan balance at the end as a balloon payment!
 
  • Note the difference in the monthly payments of only $71 per month if you defer payments but re-amortize and make the higher monthly payment to have the debt paid in full at the end of the 360-month loan period.  
 

How to Setup Payments and Monitor Balances for SBA Covid EIDL Loans
Information from SBA website....

You are responsible for your COVID-19 EIDL monthly payment obligation beginning 30 months from the disbursement date shown on the top of the global front page of your Original Note. During this deferment:
  • You may make voluntary payments without prepayment penalties
  • Interest will continue to accrue on your loan during the deferment
  • If you do not make voluntary payments during the deferment, a final balloon payment will be due on your loan at maturity (the end of the 360 month loan period)
To setup for repayment and your monitoring of SBA Covid EIDL Loans you need to create an account in SBA’s Capital Access Financial System (CAFS) . You must have a funded loan to access the CAFS system. Go to this link to Get account enrollment instructions.
Go to this link to access additional instructions on how to make a payment on your COVID EIDL

For borrowers making online payments through Pay.gov  (SBA’s preferred method)-
Based on the guidance I have been provided by the SBA, a borrower who deferred payments and now wants to have a new monthly payment recalculated at an amount so the loan is paid in full at the end of the 360-month loan period would need to contact the SBA Service Center to make a request for the SBA to re-amortize the loan over the remaining months. The SBA Service Center in Birmingham, AL is the Center for SBA Covid EIDL loans for borrowers in Wisconsin. Also, if a borrower wants to make a loan prepayment, they are to contact the SBA Service Center. Here is a link to contact the Center: https://www.sba.gov/about-sba/sba-locations/loan-guaranty-centers/disaster-loan-servicing-center-birmingham-al


For borrowers using a different payment method:
Based on my review of the SBA guidance, it appears if a borrower is not using Pay.gov to make payments but rather is using one of the alternate payment processes (online bill payment through the borrower’s bank account or payment by mail), the borrower should be able to alter their payment amount on their own. 

In summary, I think the most important point of this update is to alert you to the fact that if you elected to defer payment on your SBA Covid EIDL loan, it will materially affect what you may owe over the life of the loan.  If you defer payments and do not adjust your monthly payment amount from what the SBA originally calculated, you will likely have a significant “balloon payment” at the end of the loan period. Also understand that if you defer payment, your overall loan costs and total payback amounts will be higher and in some cases substantially higher than if you began making the payback immediately.  
Increase in Regional Business Fund Downtown Facade Loan Program
Recently, the Regional Business Fund, Inc. board voted to increase the maximum loan size in the Façade Loan Fund program from $30,000 to $60,000. See the attachment and website here: https://www.rbfinc.org/downtown-facade-loan-fund. The Façade Loan Program provides financial assistance to encourage property or business owners in core downtowns to revitalize downtown commercial buildings within the West Central Wisconsin. This includes façade loans for businesses is communities in Barron, Chippewa, Clark, Dunn, Eau Claire, Polk, or St. Croix counties.

For more information: Facade_Loan_Program_2022.pdf

Reminder: Main Street Bounceback Grant
As a reminder, the Wisconsin Economic Development Corporation (WEDC) is still offering its Main Street Bounceback Grant program which provides $10,000 grants. The program is open to new or existing businesses opening a new location or expanding operations in a vacant commercial space as of January 1, 2021. The program is being administered by the WEDC in partnership with the nine Regional Planning Commissions located in the state. Here is a link to a map and the contact people for each of the nine Regional Planning Commissions-


In the Eau Claire area, the West Central Wisconsin Regional Planning Commission administers the program in its seven-county region of Barron, Chippewa, Clark, Dunn, Eau Claire, Polk, or St. Croix counties. If your business resides in one of these West Central Wisconsin Regional Planning Commission counties, to apply, go to this link or if you have questions, you can also call 715-836-2918.
 
For businesses located in counties outside of the West Central Regional Planning Commission, go to the link above and find your local regional planning commission for your county and contact them directly. It appears that the application being used by the nine regional planning commissions is the same. Click on the application link if you would like to see what the application looks like. For more information on Bounceback program please go to this link: https://wedc.org/programs-and-resources/mainstreet-bounceback-grants/


Reasonable accommodations for persons with disabilities will be made if requested at least two weeks in advance. Email sbdc@uwec.edu or call (715) 836-4820.