Can You Defer Payments on a Business Loan?

If your cash flow is tightening and you’re worried about making your loan payments on time and in full, you may be able to request a business loan deferment. This arrangement with your lender to temporarily pause your small-business loan payments can give you the breathing room to steer your finances back on course.

Your lender is likely to give serious consideration to a request for deferred loan payments if you’re experiencing economic hardship — especially due to a lack of working capital — and can identify the root cause, develop a plan to correct it and perhaps put some of your own money into fixing the issue, Kevin Janusz, vice president and SBA lending manager at Beneficial State Bank, explained to NerdWallet by email.

Janusz shared with NerdWallet examples of situations in which a lender may consider granting a deferment, including:

• Financial hardship caused by losing an important client, inability to hire/retain talent or employee theft.

• Macroeconomic issues affecting the business, such as tariffs, supply chain disruptions or pandemics.

• Severe weather events that temporarily disrupt business operations.

“The best scenarios for deferment are when a borrower is experiencing a short-term impact that will cure within the period of the deferment, allowing the business to successfully ‘catch back up’ coming out of the pause in payments,” Maggie Ference, SVP, Small Business and SBA director at Huntington Bank told NerdWallet via email.

In other words, if the issue preventing you from making your loan payments isn’t likely to resolve itself or be remedied through adjustments within the next few months, then a deferment may not be the best option. In that case, you may have other forms of payment relief.

There are also situations in which a lender is unlikely to grant a deferment, Janusz told NerdWallet. Those could include the borrower:

• Failing to be transparent with the lender.

• Not making sufficient effort to correct the root cause of the financial issue.

• Using the loan proceeds for something other than what they were approved for.

• Engaging in fraudulent activity.

• Removing collateral without the lender’s prior approval.

• Breaking the terms of the loan agreement.

If you think deferment may offer the temporary financial relief your small business needs, then the first step is to contact your lender.

Be prepared to explain the underlying cause of your cash flow crunch and demonstrate that you have a plan to get back on track. Your lender may require additional information, documentation or even an onsite visit to assess the issue and need.

“Every financial institution’s process will be a little different: Some may require a hardship letter to explain the need to pause payments, some notes may outline the repercussions of deferment, others may charge fees during these periods of change or require an action plan,” Ference said.

“The SBA expects lenders to work with borrowers in financial distress with reason and care. However, the SBA also requires the lender to preserve and protect the collateral securing the loan and conduct in-person site visits…when an SBA borrower is under financial stress,” Janusz said.

In other words, while the SBA encourages lenders to support struggling business owners, it also expects them to safeguard loan assets and maintain close oversight.

Janusz shared with NerdWallet several key steps that SBA borrowers should follow when requesting a deferment:

2. Schedule an appointment with the SBA SCORE office.

3. Identify the root cause of your financial hardship.

4. Develop an action plan to address the issue.

He added that borrowers should also be prepared to invest some of their own money into the business to help stabilize their finances.

If your business is facing a cash flow crunch and you’re concerned about making upcoming loan payments, you may have a few options available to you, depending on your lender, loan and specific circumstances.

In addition to a deferment, your options may include:

• Interest-only payments: You only pay the interest, not the principal, on your loan for a short, agreed-upon period. This can temporarily and significantly reduce your payments, giving you time to stabilize your cash flow. 

• Business loan forbearance: Forbearance is a short-term relief option that’s similar to deferment. The key difference is that your loan term remains the same, so your payments increase sharply at the end of the forbearance period to make up for the months you didn’t make payments. 

• Business loan restructure: Loan restructuring involves working with your lender to renegotiate the terms of the loan so that future payments are more manageable.