The past two years were TOUGH for small businesses. COVID-19 affected all areas of our lives, and business owners had to make the best financial decision at the moment to try and stay afloat, and sometimes that meant accruing pandemic debt. 

We had to choose between paying an invoice or bill for the business or paying a bill for the household. All of this was happening while juggling online school for our children and the uncertainty that COVID-19 brought to our lives. 

The government offered two federal programs to assist small business owners in the midst of this. These programs were the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL). PPP was forgivable as long as the business followed specific rules set forth by the Small Business Administration (SBA). The EIDL is more like a traditional loan with repayment requirements. 

If taking advantage of one or both of these programs feels like a distant bad memory, you’re not wrong. The SBA announced the availability of EIDLs back in March of 2020. Over the past two years, there were times you could increase your SBA loan amount if more funds were needed.

With the recently extended 30-month deferment, the repayment on those first loans is coming due in just a few short months. Thirty months is 2.5 years; that’s not a short amount of time! It’s also not a short amount of time for the interest you have been accruing while you waited. 

Many small business owners need to be prepared to add a new monthly payment to their expenses at the end of 2022. Instead of feeling like it was a personal failure to take on debt, recognize that these programs were designed to help businesses weather the pandemic. If you are still in business in 2022, CONGRATULATIONS! This was a tough two years, and you made it! Now let’s make sure you’re ready for the repayment.

Repaying the EIDL

A few things to note about the EIDL program repayment: 

• First payments have been deferred for up to 30 months from the loan date; while the interest rate is low, interest is accruing during the deferment period.
• There is no penalty for pre-payment, so you can counteract the interest accrual if you can make payments during this period. 
• The length of the repayment period is 30 years. This lengthy repayment period and low interest keep payments low, but simply increasing your payments by ½ can significantly reduce the longevity of your repayment period. 

With these payments accruing interest and coming due soon, now is the time to review your cash flow and make sure you make the most of your EIDL repayment options. 

Whether it is the EIDL loan or other debt accrued during the pandemic, we recommend that you take three simple steps to handle your debt. Reducing your debt allows companies to be more agile and able to grow, so get started now! 

Create a Repayment Plan for Pandemic Debt

When tackling debt, you need a plan! Take a complete look at all the debt you are carrying in your business, the interest rates, repayment terms, and the interest accrued so far. After you completely understand your business debt, pick your pay-off priorities and set a (realistic) timeline for repaying the debt. 

Easier said than done, right? Prioritizing and setting a realistic timeline requires a great understanding of your cash flow and future earnings potential. This is where budgets and forecasts become critical to your ability to make the best decisions for your business. If you don’t have either of these yet, here are just a few questions to ask yourself, specifically about that upcoming EIDL payment: 

• Can you afford the minimum payments on your debt right now without changing a thing?
• Can you afford more than the minimum payments on your debt right now without changing a thing?
• How confident are you that you can continue to make the same amount of money or more every single month for the next 30 years (because that’s the term on an EIDL)?
• How confident are you that your cost of doing business will not increase for the next 30 years?
• Do you have a cash runway or a plan to create an emergency savings account for your business that will keep you from needing to take on more debt for similar reasons in the future?

This is not financial advice because everyone should talk to a professional like 4 Corners CFO to discuss their unique business and financial situation, but 30 years is a LONG time to attempt to predict the future. If your plan is to make minimum payments, make sure you are taking the necessary steps to sustain a profitable and enjoyable (for you) business for that long.

We like to point out that carrying debt in your business is not 100% bad; if you want to learn more about using debt as a tool, check out this recent blog post.

Cut Expenses & Increase Revenue

A great way to increase your cash flow is to reduce costs and/or increase revenue. I’m not talking about selling more (though that works if you want to work it that way). We like to focus on cutting costs that don’t add value, increasing prices, and focusing on your most profitable products/services. 

Check out our original article about optimizing profit here.

Pandemic Debt Management Tools

Depending on the type of debt you are carrying, it may be sensible to look at debt management tools like consolidation or refinancing. You may be able to access a better rate, a lower monthly payment, or more favorable repayment terms. A prime example of this is a high-interest line of credit or credit card debt that can be converted into a term loan for a significantly lower interest rate and reasonable repayment length.

If your debt is from the EIDL loan, the interest rate is low, but the term is long. Your best option is to make

the most significant payments you can over time. Larger payments will reduce the balance and the length of time it will take to repay. If you are dealing with debt accrued during the pandemic or just in the normal course of business and need some guidance, book your complimentary discovery call today! Debt management is just one of the things we do to help our clients reach their financial goals and keep more profit in their business. Let’s chat about where you want your business to be in 1, 3, 5, or 10 years!