Best Ways to Reduce Business Loan Payments Without Refinancing

As a small business owner, you may have already experienced the rollercoaster of changes in your cash flow. When that happens, you may find yourself needing additional cash or to postpone a loan payment. If it’s just a temporary bump in the road, you can ask your lender to pause your loan payments. Sometimes that’s called payment relief or a business loan deferment.

Before you call the lender, round up your financial statements and any documents you’ll need to demonstrate two things:

First, you need to show that the cash flow disruption is just a temporary setback.

Second, you need to demonstrate that you’re in a strong position to overcome this temporary challenge.

The best way to improve your chances? Have a good track record, and be proactive. Don’t wait until you have to skip a loan payment - reach out right away and see if you qualify for a loan deferment.

A Basic Guide for Calling the Lender

The script below is just a rough outline and you may want to change it to meet your specific business needs.

It was based on experiences of two bank lending officers who have been on the other end of this phone call. They are Kevin Janusz, Beneficial State Bank vice president and SBA lending manager, and Maggie Ference, an SVP overseeing small business and SBA at Huntington National Bank.

You: Hi my name is [name] and I’m the owner of [small business name]. I’m calling to get assistance since I’m in a bit of a cash-flow jam. Can you help me?

Lender: I can help you. I’d like you to provide a little bit more detail. Describe what’s going on with your company.

You: I need help because cash flow interruptions mean that I can’t make payments for a month or two.

Lender: What’s caused the interruption? Why don’t you have enough money to cover loan payments?

You: [Insert an overview of the underlying problem - for example staffing troubles, problems with your supply chain or losing a key client.]

Lender: I get it. Explain what you’ll do to fix things.

You: [Describe what you have already done, such as posting a job opening, making plans to find new clients or renegotiating prices with suppliers.]

Lender: Thanks for the specifics. If you give me some facts, I’ll help you. What other proof do you have that helps prove that this is temporary and not the start of a longer-term change?

You: I can email you my profit and loss statement and balance sheet, plus screenshots of what I’ve already done to solve the problem.

Lender: That helps a lot. Shoot me the paperwork. Anything else you can share?

You: Can you explain how a business loan deferment will work? How long does a deferment last?

Lender: It depends on the specific loan and the bank. But typically, the deferment is for one to six months, and it can get you a bit more breathing room.

You: Will a deferment hurt my credit? Will it affect my credit score?

Lender: While deferments may be reported to the major credit bureaus, they usually don’t directly affect your credit score.

Interest Still Accumulates

You: What happens to my payments after the deferment? Will they be bigger?

Lender: Interest still accumulates. It adds up. That means the total amount you owe at the end of the deferment can be bigger than if you didn’t defer payments. Once I see your application and paperwork, I’ll know how much bigger.

You: So the amount I owe will go up because of the deferment?

Lender: Yes. That’s correct. Once the deferment period is over, your loan payments could be higher for the rest of the term, to make up for the payments you skipped.

Instead of higher monthly payments, some lenders might add your missed payments to the end of the loan, in a lump sum. Others may extend your loan’s term once you enter into a deferment agreement. That means the loan payoff date could be pushed back, too. It depends on the lender’s policies and the type of loan.

You: I’m glad I asked. This really helps me. The extra cost doesn’t change the fact that it will be a lifesaver. It buys me time to sort out my cash flow problem. I’ll prepare myself for bigger payments later on.

Lender: There might be other choices besides pausing loan payments, such as interest-only payments, restructuring the loan or a business line of credit. We can talk about that when you apply.

You: That’s a lot to consider.

You: I’ll take a look and get back to you on [the day and time you can follow up].

Keep in mind that if you’ve missed a payment already, it’s too late to request a payment pause.

Pausing Loan Payments Isn’t Your Only Option

If you’re having financial problems, you need to speak to your lender to understand what options are available to you.

Another possibility to get some payment relief is an interest-only payment plan. That’s when the lender lets you pay interest charges only for an agreed-upon time. That way you can free up cash flow by making smaller monthly payments.

This option makes sense if you temporarily don’t have enough revenue coming into the business to pay the loan in full, but can still afford the interest.

Another thing to consider is restructuring the loan: That’s when the lender and you agree to permanently change the monthly payment, interest rate or both in a way that makes the term of the loan fit your business’s ability to pay.

If you think the payment issue is likely to last more than a year and you’re in danger of defaulting on the loan, restructuring may be a better option.

You could also refinance, which means you take out a new loan that pays off the original. Sometimes a new loan comes with a longer time-frame or a lower interest rate.

You might do that if you’re able to qualify for a lower interest rate or better terms.

Business lines of credit are a cash backstop that is similar to how it sounds: You have a line of credit for your business and can pull money from it as needed. Like a credit card, you pay interest on the money you pull, not on the rest of the line.

This can work well if you already have a line of credit open and are looking for a way to cover expenses until cash comes in, but not long.

Janusz’s suggestion is a business line of credit with an interest-only period first. This may cover your shortage of working capital for that period, he says. Paired with a payment pause, that could give you enough breathing room in cash flow to solve whatever is causing the cash crunch. Eventually, when the temporary cash flow challenge passes, you would need to make full monthly payments on the line of credit, on top of the original loan.

Still, borrowing more when you’re struggling might seem like a tricky issue. But it’s worth considering. A credit line to cover a shortfall while you wait for business cash to show up can still be a better, less expensive idea than a “merchant cash advance.” Rates on a line of credit are usually far lower than merchant cash advances, and you could be able to get a longer term with less frequent payments, too.