Introduction: The EIDL Loan
Welcome to the world of Economic Injury Disaster Loans (EIDL)! These loans, provided by the US Small Business Administration (SBA) during the COVID-19 pandemic, were a lifeline for many businesses. With an interest rate of less than 4% and a maturity of up to 30 years, they were easy to obtain and incredibly helpful. But now that you've had the funds for a couple of years, it's time to dive deep and understand your payment requirements. Let's embark on this journey together!
Step 1: Discover Your Current Balance
First, head to the SBA website to check your current loan balance. Many of our clients were surprised to find that the one-year no-interest period had expired, and their loan amounts had increased due to accrued interest. Don't let this surprise catch you off guard! Find your balance and determine your monthly payment. Make sure to share this information with your bookkeeper to keep your financial records up to date.
Step 2: Reflect on Your Loan Usage
Think about how you've used these funds or how you plan to use them. Do you still need this money? How long do you want to take to repay the loan? Whether you prefer a five-year, ten-year, or full 30-year repayment period, it's essential to match the use of the funds with the repayment timeline. For example, if you used the funds to pay off vehicle loans with five-year maturities, consider aligning your EIDL loan repayment with that period.
Step 3: Analyze the Cost of Borrowing
Worried about losing the low interest rate on these funds? If you think you might need the money again soon, run a cost analysis. Compare the interest you're paying on the funds you don't need to the cost of borrowing at a higher interest rate in the future. It might be more cost-effective to pay down the loan now and borrow again later when necessary.
Step 4: Prioritize Sustainability
Sustainability is crucial for any business. Before making any prepayments on your loan, ensure you have enough cash to meet unexpected needs for the next six months. Once you've secured your basic cash needs, consider making a lump sum payment on the EIDL loan. While prepayments won't reduce your monthly payment, they will shorten the loan term.
Step 5: Adjust Your Payments
Many clients find that the principal and interest payments required by the SBA aren't enough to pay off the loan within their desired term. You can adjust your payments on the SBA website to reduce the loan term. This proactive approach ensures you won't be caught off guard by your loan balance.
Conclusion: Take Control of Your EIDL Loan
Don't let your EIDL loan become a mystery. Take a moment now to visit the SBA website MySBA Loan Portal, check your balance, and make a plan that works best for your organization. By staying informed and proactive, you'll navigate your loan repayment smoothly and keep your business on a solid financial footing.
Happy loan managing! If you have questions about how to manage multiple loans in your bookkeeping process, Contact Us Today. We’re here to help your business thrive!