For business owners facing a dramatic loss of revenues due to the coronavirus (COVID-19) pandemic, it is essential to communicate with your bank as soon as possible to discuss payment deferrals or restructuring of loans or lines of credit.

Banks and credit unions have additional flexibility to work with business customers and individual depositors during the COVID-19 crisis, as six national regulatory agencies this week released a joint statement clarifying that they would not penalize financial institutions for making loan modifications during this time.

The statement was issued Sunday evening by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration, the Office of the Comptroller of the Currency, the Consumer Financial Protection Bureau, and the Conference of State Bank Supervisors.

The agencies pledged not to criticize lending institutions for working with borrowers and said they will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as troubled debt restructurings, which ordinarily could compromise an institution’s risk profile or liquidity.

If your lending institution has not yet communicated with you, contact them to discuss loan modifications. Be prepared to provide detail about:

  • Your business operations during the COVID-19 crisis, i.e. a shut down or reduction in business
  • Layoffs or reduction in your employees’ hours
  • Cost-cutting measures such as putting on hold purchases of raw materials or goods to be sold

In addition to the relaxed stance on loan modifications, regulatory agencies are encouraging banks and credit unions to waive early withdrawal penalties for CDs and to ease restrictions on cashing out-of-town checks and checks from noncustomers.

In a guidance statement issued in mid-March, the FDIC stated: “Financial institutions should work constructively with borrowers in communities and industries affected by COVID-19…. When appropriate, a financial institution may modify or restructure a borrower’s debt obligations due to temporary hardships resulting from COVID-19…. Modifications should be based on the facts and circumstances of each borrower and loan.”

In the midst of the COVID-19 crisis, the Small Business Administration (SBA) is offering Ohio counties low-interest disaster loans for working capital to small businesses suffering economic injury. For more information and to see if your business is eligible for this loan, click here.

The key to dealing with your business loans is to act quickly. Make that call to your banker now. If you have any questions, please contact our advisors.

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