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.
What is 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 need to repay any payments missed during forbearance, with interest.
Furthermore, your credit score could drop if your lender reports the forbearance to credit bureaus.
How much do you need?
We'll start with a brief questionnaire to better understand the unique needs of your business. Once we uncover your personalized matches, our team will consult you on the process moving forward.
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, with a business loan deferment, 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
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,” Mark Valentino, head of business banking at Citizens Bank, said 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.
You shouldn’t request forbearance unless your business truly needs it, Kevin Janusz, vice president and SBA lending manager at Beneficial State Bank, said in an email. “Lenders, much like school teachers, have heard every kind of excuse for late payments or financial trouble.”
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.
- 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.
- 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.
“Approaching [your lender] 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. “Staying ahead of the problem and communicating and engaging with your lender early on can help your business survive.”
🤓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. Which one fits depends on how long your hardship will last.
Payment relief option | When to consider it | How it helps | What to watch out for |
|---|---|---|---|
Your hardship won’t last longer than three months. | Your payments are paused for one to three months, while the repayment term is usually extended for the length of the deferral period. | Interest may continue to accrue. | |
You need short-term relief but can still afford interest. | You temporarily pay just the interest. | You’ll pay more in interest over the life of the loan. | |
You already have one open and need short-term support. | You can borrow only what you need and pay interest on the amount drawn. | Taking on additional debt will make matters worse if your business doesn’t turn around. | |
You can pay it back before the promotional period ends. | You can skip having to pay interest during the promotional period (often 12 months). | Interest can shoot up quickly after the promotional period. | |
You can qualify for a new loan with lower monthly payments. | You can use a new loan to replace your current loan to reduce monthly payments. | You might pay more in total interest if the repayment term is longer. | |
Your hardship will last more than a year and you’re at risk of defaulting. | Your loan terms are permanently changed to make monthly payments more manageable. | Lenders may only consider it after you’ve already missed multiple payments. |
