indicatorUnderstanding Deferrals

Business term loan deferrals

How does a business term loan deferral work? How does it affect repayment? Here’s what to consider before deferring your business term loan.

How does the deferral work?

The answer to this question depends on which of the two deferral options was made available to you.

Option 1: Available to customers who deferred payment of both principal and interest

A deferral on a business term loan means that payment of both principal and interest are suspended for a defined period of time, and the amortization period on your loan is extended by the same number of months as your deferral period. During the deferral period, interest still accumulates at the applicable rate, as set out in your Credit Agreement, on the outstanding principal balance.

COVID-19 relief offer note: As part of ATB’s COVID-19 Relief Program, business customers who entered into their deferral period prior to June 8, 2020 will automatically enter into a new deferral period when their original three-month deferral of both principal and interest payments end. If you do not want to automatically enter into this new deferral period, please connect with us as soon as possible. This new deferral period will defer the principal portion of payments to September 30, 2020, making your payments interest-only from the end of your original three-month deferral period until September 30, 2020. The amortization period on your loan is further extended by the same number of months as your principal-only deferral period.

If you have life and/or disability insurance on your loan, those premiums will continue to be debited from your account to maintain your coverage.

Option 2: Available to customers who defer the principal portion of their payments, starting on June 8, 2020

With this option, the principal portion of payments are suspended for a defined period of time, but interest payments continue to be charged and are due and payable in accordance with the terms of your loan. The amortization period of your loan is extended by the same number of months as your deferral period.

You may defer the principal portion of your payments until September 30, 2020.

If you have life and/or disability insurance on your loan, those premiums will continue to be debited from your account to maintain your coverage.

How does repayment work?

Again, the answer to this question depends on which of the two deferral options was made available to you.

Option 1: Available to customers who deferred payment of both principal and interest

When your loan payments resume after the end of the original three-month deferral period, we apply your payments first towards all interest accumulated during the deferral period (typically part of your payment goes towards interest and part towards your outstanding principal balance). Interest will also continue to accumulate at your applicable rate on the outstanding principal balance. Once all interest accumulated as a result of the deferral period has been paid, payments will resume being applied in accordance with the loan terms. Please see the example below.

Note: The above applies to regular blended payments of principal and interest. More information will be coming soon if you have fixed principal plus interest payments or interest-only payments.

For example:

  • Let’s say that the interest is $500 per month and the deferral period is three months (April to June) so $1,500 interest accumulated during the deferral period.
    • No payments are debited from the payment account unless those payments are for life and/or disability insurance during the deferral period, if applicable.
  • Monthly loan payments of $2,000 resume in July.
  • July’s $2,000 payment is applied towards the accumulated interest owed of $1,500 from the deferral period and the accrued interest for July.
  • August’s $2,000 payment is applied in accordance with the Credit Agreement terms.

Your payment amounts will remain the same until the last payment of your loan. Despite the amortization period being extended by the same number of months as the deferral period, the last payment of your loan will increase. This increase is a result of the deferred payments, as you will not have paid all the principal and interest owing by the end of the amortization period of your loan.

COVID-19 relief offer note: As part of ATB’s COVID-19 Relief Program, if you entered into your deferral of both principal and interest payments prior to June 8, 2020 and your deferral of the principal portion of your payment was automatically extended at the end of your initial three-month deferral period until September 30, 2020, this is what to expect:

  • All interest accumulated during your original three-month deferral period, along with your current monthly interest payment, will be due and automatically debited from your payment account on the next scheduled payment date. This will occur in the month following the end of your initial deferral period.
  • Interest payments will continue to be debited from your payment account on the scheduled payment date.
    If you have life and/or disability insurance on your loan, those premiums will continue to be debited from your account to maintain your coverage.
  • After September 30, 2020, your payments of both principal and interest will resume in accordance with your loan terms. Your payment amounts will remain the same until the last payment of your loan.
  • The amortization period on your loan will be further extended by the same number of months as your principal-only deferral period.
  • Despite the amortization period being extended, the last payment of your loan will increase. This increase is a result of the deferred payments, as you will not have paid all the principal and interest owing by the end of the amortization period of your loan

Option 2: Available to customers who defer the principal portion of their payments, starting on June 8, 2020, and expiring on September 30, 2020

When your loan payments of both principal and interest resume after the end of the deferral period, your payment amounts will remain the same until the last payment of your loan. Despite the amortization period being extended by the same number of months as the deferral period, the last payment of your loan will increase. This increase is a result of the deferred payments, as you will not have paid all the principal and interest owing by the end of the amortization period of your loan.

What should you consider?

Deferring payments may significantly increase your interest costs over the life of your loan, so it's important to evaluate your financial situation and priorities before exercising this option. Please connect with us about the possible impacts of deferring your loan payments.

Repayment strategies

If you’re concerned about not having sufficient funds available when your payments resume, please connect with us prior to the end of the deferral period to explore more manageable options. To repay any deferred payments early, please connect with us directly, so we can ensure your payments are applied correctly.

Helpful definitions

Amortization period: The total number of years that it’ll take to pay off your loan

Debit: To take out of your account

Deferral period: The defined period of time that your payments are suspended

Interest: The charges that accrue (or accumulate) over time, which are determined by applying the rate to an amount owing from time to time under a loan, line of credit or lease agreement

Outstanding principal balance: The current amount owing on your principal balance

Payment account: The account you designated, from which your payments are withdrawn

Principal balance: The original amount of money you borrowed

Rate: The interest rate you pay under your loan, line of credit, lease, or cardholder agreement

Secured: When you use an asset, such as your home, as collateral to secure the loan

Term: The length of time you’re committed to in the conditions set out in the loan agreement or lease agreement, such as your interest rate and payment amount

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