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Paying back Covid loans is hammering millions of businesses




CNN

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

“It was a challenge,” said owner Alan Popovsky. “I will have to climb the hill for a while. Probably for the rest of my life.”

The pandemic has closed two of Popovsky’s four restaurants in the area. He said government loans saved the other two. But with city centers struggling to attract commuters and pedestrians again, he said revenue is still down more than 45% and they are struggling to stay afloat.

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

“We just finished paying the landlord,” said Popovsky. “It really feels like you’re just a guinea pig spinning on wheels.”

At the start of the pandemic, when business activity came to a halt, nearly 3.8 million small business owners took out Economic Disaster Loans (known as EIDL loans) from the federal government, about an average of about $100,000 per loan, according to the Small Business Administration. Unlike some other pandemic programs, these 30-year loans, with an interest rate of 3.75% for businesses, are intended to be repaid.

The pandemic has 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 government loans.

After more than two years of delay, the monthly payments on the first EIDL loan began to come due. About 2.6 million businesses across the country will owe money by the end of January.

Popovsky said he owes the federal government about $780,000 and began receiving monthly bills of more than $3,700 in October.

“We can’t pay anything, but what we’re doing is just paying interest right now,” he said. “We didn’t make a dent on the principal.”

a new one survey from the National Federation of Independent Business shows that only 36% of their small business members have achieved pre-pandemic sales levels, while 31% of businesses are still below 75% of pre-crisis sales. panic.

Coming out of the pandemic, small businesses face tough obstacles, such as staff shortages, supply chain issues, and inflation.

Now let’s add a possible recession as soon as these EIDL loans come due.

“Many of them have a lot of challenges and they have to overcome a lot of them,” said Holly Wade, executive director of the NFIB Research Center. “That’s one more cost they’ll have to deal with, and unfortunately, some small business owners will struggle to meet those obligations.”

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

Lisa Klein, who owns and operates an outpatient physical therapy clinic with offices in Virginia and Washington, DC, said her clinic is still trying to bounce back from Covid-19, which is making some patients stay away or force it to be costly at the last minute. cancel.

“The cost of everything goes up,” says Klein. “The whole business is still struggling and this is just another kind of insult to add to the wound.”

Klein took out a $200,000 EIDL loan at the start of the pandemic but paid back half of it after a year as interest started piling up. The SBA estimates that businesses have accrued between $32 billion and $34 billion in profits during the 30-month delay.

She’s currently paying close to $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 out of the water, and you keep getting hit by something else,” says Klein. “But we have no choice, because if we don’t keep paying the debt, it will accrue more interest.”

Under the SBA, struggling businesses can declare hardship and make a partial payment of 10% of the regular monthly payment for a minimum of $25 for six months. But interest will continue to accrue, forcing owners like Klein to consider short-term protections against a large bill in the future.

Under the SBA, borrowers are still responsible for repaying loans even if their businesses are closed, unless the debt has been resolved in the event of bankruptcy. For EIDL loans over $200,000, a personal guarantee is required for individuals with 20% or more ownership in the business.

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

“I feel like they say keep trying, Alan, keep trying,” he said. “I feel like they are the wind under my wings.”

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