Paying back Covid loans is hammering millions of businesses

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

“It’s very challenging,” owner Alan Popovsky said. “I’m still going to be climbing the hill for quite some time. Probably for the rest of my life.”

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

To make matters worse, it’s time to start paying back those loans.

“We just got over paying back the landlord,” Popovsky said. “It’s really a feeling that you’re just a hamster spinning on a wheel.”

At the start of the pandemic, as business stalled, nearly 3.8 million small business owners took out Economic Injury Disaster Loans (known as EIDL loans) from the federal government, averaging roughly $100,000 per loan, according to the Small Business Administration. Unlike some other pandemic programs, these 30-year loans, carrying an interest rate of 3.75% for businesses, were intended to be paid back.

The pandemic closed two of Alan Popovsky's four restaurants in Washington, DC. Government loans saved the other two, he said. But revenue is still down more than 45% — and it's time to start paying back those government loans.

After more than two years of deferrals, the first EIDL loan monthly payments have started to come due. Around 2.6 million businesses across the country will owe money by the end of January.

Popovsky said he owes the federal government roughly $780,000, and started receiving monthly bills for more than $3,700 in October.

“We can’t afford anything, but what we’re doing is paying the interest only right now,” he said. “We have not made a dent on the principal.”

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

Coming out of the pandemic, small businesses have faced difficult hurdles, like staffing shortages, supply chain issues and inflation.

Now add a possible looming recession, just as these EIDL loans come due.

“The challenges are immense for many of them and they’re having to navigate a lot of those headwinds,” said Holly Wade, executive director of the NFIB Research Center. “It is one more cost that they’re going to have to deal with, and some small business owners, unfortunately, are going to struggle with meeting those obligations.”

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, DC, said her practice is still trying to claw its way back after Covid-19, which is keeping some patients away or forcing costly last-minute cancellations.

“The costs of everything have gone up,” Klein said. “The whole business is still suffering, and this is just kind of adding insult to injury.”

Klein took out a $200,000 EIDL loan at the start of the pandemic but returned half of it after a year as the interest began piling up. The SBA estimates that businesses have accrued between $32 billion and $34 billion in interest over the 30-month deferment 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 just keep getting hit by something else,” Klein said. “But we have no choice, because if we don’t keep paying it, it’s going to accrue more interest.”

Struggling businesses can declare hardship and make partial payments of 10% of the regular monthly payment with a minimum of $25 for six months, according to the SBA. But interest will keep accruing, forcing owners like Klein to weigh short-term protection against a big bill further down the line.

Borrowers are still responsible for repaying loans even if their business closes, unless the debt has been discharged in bankruptcy, according to the SBA. For EIDL loans over $200,000, a personal guaranty was required for individuals with 20% or more ownership in the business.

Popovsky said he has considered shutting down Teddy & The Bully Bear but has felt inspired to keep fighting by the memory of his father as well as his co-founder, Melvyn, who passed away in 2014, just one year after the restaurant opened.

“I feel them saying keep pushing on, Alan, keep pushing on,” he said. “I feel like they’re the wind beneath my wings.”

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