Our friend and colleague Doug Hood has been an SBA consultant and small-business advocate for over 27 years and has won many awards and accolades for his work, including U.S. SBA and Veterans Administration advocacy awards. We had an email conversation with him recently about trends in SBA loan payment modifications and deferrals. Here’s a lightly edited summary.
LRM: Have you seen an increase in Borrower requests for payment modifications?
Doug Hood: Yes! I get one or two calls and several emails every week asking for help with payment deferrals. It’s a concerning trend.
LRM: What are the most common reasons for those requests?
DH: The biggest issue is the rise in interest rates, which has created a huge increase in their monthly payments. Borrowers are seeing a ten to 25 percent increase in their loan payments, which for many just isn’t sustainable. And seasonal businesses are also struggling with reduced consumer demand.
LRM: When they call you, do they have a plan in mind, or are they looking for guidance on what’s possible?
DH: Most of them don’t know what to do, and they’re hesitant to reach out to their Lenders for fear of losing their business. So they call me to see if I can help.
LRM: What kind of feedback are they getting from their Lenders? Is it an outright no, or are there some Lenders willing to collaborate with the Borrowers?
DH: Unfortunately, some Lenders say they don’t have any options, and tell the Borrower that they must keep making payments or the loan will go into default. I’m glad to say that others are willing to work with their Borrowers and help in the form of interest-only payments.
LRM: What is the biggest challenge for Borrowers in communicating with Lenders?
DH: Finding a live person to talk to! Most Borrowers don’t know anyone at the lending institution except for their business development officer – and while the business development officer should be able to direct their inquiry, that doesn’t always happen. Sometimes there’s a phone number on the billing document or loan statement that the Borrower can call.
LRM: What advice you are offering to those struggling to obtain Lender assistance?
DH: Be prepared. Have recent business and personal financial statements and your tax return. Think before you call. Come up with a reasonable plan to return to a regular payment structure. Lenders are more willing to work with someone who’s realistic and prepared.
LRM: For Lenders that are granting deferrals, what type are you seeing? Interest-only payments, or something else, and for how long?
DH: Typically, interest-only payments for anywhere from three months to – occasionally – six months. It’s rare for any Lender to offer a full payment deferral for a long period of time.
In conclusion: Mercifully, the Fed has stopped raising interest rates for now – but, as Doug indicates, that’s not helping Borrowers stressed by the change in their interest payments. We here at LRM encourage Borrowers to follow Doug’s advice to be prepared – and also to remember that Lenders really don’t want to put loans into default!
And we encourage Lenders to be proactive with their Borrowers to see who’s struggling and where you can help.