What Is Business Loan Forbearance, and When Should You Request It?
Loan forbearance allows you to temporarily skip or reduce loan payments while you get your finances back on track.
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Managing Editor Business setbacks happen. But they don’t always have to derail payments on a small-business loan. To prevent that, you may be able to work with your lender to place your business loan in forbearance.
Forbearance allows you to temporarily pause or reduce payments on a small-business loan — typically for three to six months.
Think of it like a pressure release valve for your business finances. It gives you a chance to get your business back on track without having to make full loan payments for a while.
The catch is that you’ll need to make a compelling case to your lender for why it should approve the request. You’ll also be required to repay any payments missed during forbearance, with interest.
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What happens after the forbearance period?
You’ll have to resume regular loan payments once the forbearance period ends, plus repay the missed principal and interest.
Paying back missed payments typically happens in one of two ways:
- Add them to your remaining payments. Since your loan’s term doesn’t change, missed payments will be added to the remaining payments left on your loan. This means your monthly payments will increase compared with your payments before forbearance.
- Pay them all at once. Alternatively, your lender may allow you to make a lump-sum payment for the missed amount, due at the end of your loan term. This keeps your monthly payments the same, but you’ll owe a larger final payment.
What’s the difference between forbearance and deferment?
Loan forbearance and deferment both offer short-term payment relief through a pause or reduction in payments. However, when your business loan is deferred, the repayment term is extended by the length of the deferment period. This helps keep monthly payments the same, unless interest or fees accrue. With forbearance, your loan term stays the same regardless of how long relief lasts.
When to consider business loan forbearance
You shouldn’t request forbearance unless your business truly needs it, said Kevin Janusz, vice president and SBA lending manager at Beneficial State Bank, in an email. “Lenders, much like school teachers, have heard every kind of excuse for late payments or financial trouble.”
Business loan forbearance may make sense if:
- Your hardship is temporary. For example, you’re experiencing a seasonal cash flow dip, need to make emergency equipment repairs or are recovering from a natural disaster or short-term supply chain issue.
- You need immediate cash relief. Forbearance could free up money to cover critical expenses and help you avoid missed payments or a business loan default. “Cash flow is the lifeblood of a business,” said Mark Valentino, head of business banking at Citizens Bank, in an email. “Ensuring liquidity during these periods is critical — not just for survival, but for maintaining operational stability and lender relationships.”
- You have a good history with your lender. Lenders are more likely to grant forbearance if you have consistently made on-time payments in the past.
Pros and cons of business loan forbearance
Pros
Your loan payments will be paused or reduced while you work to stabilize your business.
Can help you avoid missed payments or default.
Cons
Your lender might not allow it.
Missed or reduced payments still have to be repaid, either as a lump sum or spread over remaining loan payments.
Your credit score may take a hit.
It’s not a long-term solution.
How to request business loan forbearance from your lender
If you’re struggling to make loan payments and need short-term relief, act early and communicate clearly with your lender. Here’s how to make your request:
- Reach out to your lender early. Don’t wait until you’ve already missed a payment. Contact your lender as soon as you sense financial trouble, and be transparent with the problems you’re facing. Doing so builds trust and gives your lender more flexibility to help. “Staying ahead of the problem and communicating and engaging with your lender early on can help your business survive,” Janusz said.
- Have a turnaround plan ready. Lenders want to know that your hardship is temporary. That’s why it helps to prepare a business recovery plan and have supporting documentation ready to show lenders your situation and how you’ll turn things around. “Approaching them honestly, with a clear explanation of the issue and a reasonable plan for recovery, is the best way to maintain a strong relationship,” Janusz said.
- Review the terms carefully. If your lender offers forbearance, read the agreement carefully. Make sure you understand how long relief will last, how repayments will be handled after it ends and any obligations or costs associated with it. Don’t be afraid to ask questions if anything is unclear.
🤓 Nerdy Tip
Don’t feel comfortable with your loan officer? Try requesting a new one. Your loan officer should be a collaborative partner and advocate for your business. If you feel they’re unresponsive or dismissive about your request, try to work with someone else. Consider other options
Business loan forbearance isn’t your only option to manage repayment challenges. Here are some other strategies:
- Business loan deferment. Deferment is another short-term payment relief option that your lender might consider. It offers more flexibility, since the repayment term is usually extended for the length of the deferral period, meaning payments will be the same (or close to the same) when the deferral period ends.
- Business line of credit. If you already have a business line of credit established, you may be able to use that as a flexible way to cover payments on another loan while you get your business back on track. Since you only pay interest on what you borrow, repayment costs may be less than payments on your current loan. Some lenders even offer interest-only payment options. However, taking on additional debt may only make matters worse if your business doesn’t turn around.
- Business credit card. Similar to a business line of credit, credit cards can be another source of flexible financing for business owners in a slump. This is especially true if you can qualify for a 0% APR business credit card. These allow you to skip having to pay interest for a short while (typically 12 months). Just make sure you can pay back what you borrowed before the promotional period ends to avoid paying high interest costs.
- Refinancing. If you can qualify for a new loan that has better terms or a lower interest rate, using it to replace your current loan (or loans, in the case of business debt consolidation) can help ease repayment pressure. It can, however, also add to your total interest costs if the repayment term is longer than the time left on your current loan. If you’re ready to explore options, check out NerdWallet’s list of the best small-business loans.
- Loan restructuring. If your financial hardship looks like it may last longer than a year, you may be able to work with your lender to restructure your business loan as a last-resort option. This involves permanently changing the terms of the loan to make monthly payments more manageable. Lenders will typically only consider it if you’ve already missed multiple payments and are close to defaulting on the loan. At this point, you’ve likely already reached out to your lender about forbearance and have been denied.
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