As interest rates rise and consumer spending shrinks, COVID-era federal rescue loans are coming due for thousands of small businesses.

“Ironically, the payback is coming at a time when we’re seeing a steeper decline in business than during” the COVID era, Tony Wright, owner of the 20-employee WrightIMC digital marketing firm, told The Wall Street Journal.

Although he admits the loan helped his company survive the two-year COVID ordeal, “maybe this isn’t the best time to have everyone start paying back,” he said.

The U.S. Small Business Administration (SBA) loaned roughly $390 billion to four million small businesses and nonprofit organizations. Unlike loans made through the separate Paycheck Protection Program to keep people working, SBA loans require repayment.

The agency delayed the start date for repayment three times to allow borrowers more time to recover from the COVID-related economic crash. Although Congress allowed repayments to be delayed for a maximum of four years, the SBA decided not to wait any longer.

For loans made early, mandatory monthly payments began in October and November. Repayment for another batch began this month, and the final million loans will start being repaid in January. 

The 30-year loans have a fixed 3.75-percent interest rate for businesses and 2.75-percent for nonprofits.

Courtney Cowan, who owns a Los Angeles cookie shop, used her $1 million loan for various expenses, including opening a second store. She made her first monthly payment of $5,215 last month.

“I know I have to pay it back,” she said to the WSJ, but admits to “sticker shock” when it came time to write the check.

“I certainly thought I would be in a different position today,” she added, noting that business has still not returned to its pre-COVID level.

Also, not all borrowers were aware that interest on the loan accrued from the moment the loan was made.

“You heard the word ‘defer’ and you made an assumption,” Gina Baski, owner of the TriFit fitness center in Santa Monica, CA. She failed to realize that interest was piling up even though she didn’t start making payments on her $150,000 loan until last March.

Borrowers who also have federal disaster loans, as well as SBA loans, can apply for a hardship exception, which would require them to repay 10 percent of the amount due, or a minimum of $25, for six months before resuming full monthly payments.

However, interest on the SBA loans continues to pile up during the six months.

TREND FORECAST: Loans are always a gamble. Businesses that borrowed from the government to survive the COVID War gambled on a smooth recovery; instead, they were dealt inflation and rising interest rates.

Like student debt, these loans will hobble tens of thousands of businesses for years to come. Sadly, many businesses that survived the COVID era will be done in by the loans that kept them alive.