How do I ask my lender to pause or defer my business loan payments?

If you’re having trouble making loan payments on time and paying the whole amount, you may be able to ask your lender for a deferment on your small business loan. Business loan deferment is when a lender allows you to pause your business loan repayments for a while. That could give you the breathing room you need to get things under control.

When a Lender May Grant Deferment

When asking for a deferment makes sense

When a borrower has a temporary problem that causes a working capital shortfall - not having enough money for day-to-day cash flow - the lender will want to know what the root cause was and what the borrower plans to do to fix it, said Kevin Janusz, vice president and head of SBA lending at Beneficial State Bank in an email to NerdWallet. Once that’s clear, a request for additional time to pay off the debt may be taken very seriously, he added. Sometimes borrowers can put more money into the business.

Janusz gave examples of when a lender may grant deferment.

• You lose a key client or customer.
• You have a staffing issue.
• Someone within the business steals from you.
• Wider economic factors: tariffs, supply chain disruption, pandemics.
• You’re in an area that has significant weather for a period of time that may disrupt or temporarily suspend operations of the business.

A business loan deferment can be a good idea when a financial issue is short-term and the business would be able to get up to date with payments once the pause ends, said Maggie Ference, senior vice president and director of small business and SBA at Huntington Bank, in an email to NerdWallet.

But if your problem won’t be solved in a few months, deferment may not be the best option and a lender may offer other types of relief.

When a lender will probably say no

Here are some things that could keep a lender from approving deferment, Janusz said:

• You’re not transparent with the lender about the underlying circumstances.
• You haven’t made an effort to resolve the issue.
• You’re spending the money on expenses other than what it was intended for.
• Fraud.
• You’ve taken or removed collateral from the lender without permission.
• You’ve violated terms and conditions of the agreement.

Advantages

You get some time off from payments, typically no more than three months.

Drawbacks

• Interest can continue to accrue, which means payments could be higher once the deferment is finished.
• It could take a while and involve some paperwork to get the deferment.
• Lenders may charge fees.

The Process for Requesting a Deferment

How to ask for a deferment

You start with a call, but be prepared for questions.

Tell the lender what happened and why you want the deferment. Provide a plan showing how you’ll recover from this. Depending on the circumstances, the lender may ask for more paperwork or come to your office for a visit.

The process may also vary between lenders. Your lender may require a hardship letter. Or there may be a fee while the deferment is in place. Some lenders want an action plan with your request.

How deferment works with SBA loans

If your loan is backed by the Small Business Administration, the SBA expects lenders to deal reasonably with borrowers under financial strain. But the SBA also requires lenders to protect the collateral and visit the businesses of struggling borrowers in person.

If you have an SBA loan, here are some steps Janusz suggested for seeking a deferment:

• Contact the lender.
• Identify the source of the hardship.
• Develop a plan to remedy the hardship.
• Be ready to put more money into the business.

Alternatives to Deferment

Other relief options when money is tight

If you are struggling to pay, your lender may have other options for you besides deferment. Which options will depend on your lender, the type of loan and your situation.

Here are some alternatives to deferment if you can’t afford to keep up with loan payments:

• Interest-only payments. You pay just the interest, not the principal, for a short, agreed-upon period. This can greatly reduce payments and improve cash flow.
• Forbearance. Like a deferment, but loan term doesn’t change. So, payment amount jumps steeply when the agreed period ends to cover missed months.
• Loan restructuring. Renegotiate the terms of the loan with your lender so your future payments are easier to cover.