Covid loan repayment hits millions of businesses



CNN

At Teddy & The Bully Bar restaurant near downtown Washington, DC, business has never been the same since the onset of the pandemic.

“It’s very challenging,” said owner Alan Popovsky. “I’ll be climbing the hill for quite a while. Probably for the rest of my life.”

The pandemic closed two of Popovsky’s four restaurants in the area. He said government loans bailed out the other two. But as city centers struggle to bring back commuters and foot traffic, revenue is still down more than 45% and they’re struggling to stay open.

To make matters worse, it’s time to pay off those loans.

“We just got over paying the landlord back,” Popovsky said. “You really feel like a hamster spinning in a wheel.”

At the beginning of the pandemic, as business faltered, nearly 3.8 million small business owners took out economic injury disaster loans (known as EIDL loans) from the federal government, averaging about $100,000 per loan, according to the Small Business Administration . Unlike some other pandemic programs, these 30-year loans should be repaid at a 3.75% corporate interest rate.

The pandemic closed two of Alan Popovsky's four restaurants in Washington, DC.  Government loans bailed out the other two, he said.  But revenue is still down more than 45% -- and it's time to pay off those government loans.

After more than two years of deferral, the first monthly payments on the EIDL loan are due. Around 2.6 million companies across the country will owe money by the end of January.

Popovsky said he owed the federal government about $780,000 and was receiving $3,700 in monthly bills in October.

“We can’t afford anything, but what we’re doing is just paying the interest now,” he said. “We didn’t leave the client a dent.”

A new survey by the National Federation of Independent Business found that only 36% of its small business members have reached their pre-pandemic revenue levels, while 31% of businesses are still below 75% of their pre-crisis revenue.

Post-pandemic, small businesses faced difficult hurdles such as staff shortages, supply chain issues and inflation.

Now add in a possible looming recession just as those EIDL loans mature.

“The challenges for many of them are immense and they have to deal with a lot of headwinds,” said Holly Wade, Executive Director of the NFIB Research Center. “It’s another cost they have to contend with, and unfortunately some small business owners will struggle to meet those commitments.”

Lisa Klein, who owns a physical therapy practice in the Washington, DC area, said Covid-19 is still keeping some patients away.

Lisa Klein, who owns and operates an outpatient physical therapy practice with offices in Virginia and in Washington, D.C., said her practice is still trying to fight back after Covid-19 is keeping some patients away or forcing costly last-minute cancellations.

“The cost of everything has gone up,” Klein said. “The whole business is still suffering, and that’s just sort of an insult to injury.”

Klein took out a $200,000 EIDL loan early in the pandemic, but returned half of it after a year when interest rates began to pile up. The SBA estimates that companies have accumulated between $32 billion and $34 billion in interest during the 30-month grace period.

She’s now paying nearly $1,000 a month, with a total balance of just under $80,000.

“It’s like you’re swimming and trying to catch up and get your head above water, and you keep getting hit by something else,” Klein said. “But we don’t have a choice because if we don’t keep paying it, there will be more interest.”

According to the SBA, struggling businesses can file a hardship and make partial payments of 10% of their regular monthly payment, with a minimum of $25 for six months. But interest will continue to accrue, forcing owners like Klein to weigh short-term protection against a big bill later.

According to the SBA, borrowers are still responsible for repaying loans even if their business closes unless the debt has been paid off in bankruptcy. EIDL loans over $200,000 required a personal guarantee from individuals who owned 20% or more of the company.

Popovsky said he considered closing Teddy & The Bully Bear but is inspired to keep fighting by the memory of his father and co-founder Melvyn, who passed away in 2014, just a year after the restaurant opened.

“I can feel them saying go ahead Alan, go ahead,” he said. “I feel like they are the wind beneath my wings.”

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