Line of credit deferrals for businesses
How does a line of credit deferral work? How does it impact repayment? Here’s what to consider before deferring your secured or unsecured line of credit.
How does the deferral work?
A deferral on your line of credit means interest payments are suspended for a defined period of time. During this time, interest still accumulates at the applicable rate, as set out in your Credit Agreement, on the outstanding principal balance.
If you have life and/or disability insurance on your line of credit, those premiums will continue to be debited from your payment account attached to your line of credit to maintain your coverage. Also, your monthly maintenance fee will be debited from your payment account attached to your business line of credit.
How does repayment work?
Payment of all interest accumulated during the deferral period will be due together with the next month's interest payment after the deferral period. How the actual repayment works depends on how you’ve set up your payment account to make your line of credit payments.
If your payment account is the same account as your line of credit, the repayment amount will be debited from that account and added to the outstanding balance of the line of credit. If you have a separate payment account set up, like your operating account, the repayment amount will automatically be debited from this payment account attached to your line of credit.
The payment debit will take place on the last day in the month following the end of the deferral period. For example, if your deferral period ends in July, all accumulated interest owed plus interest accumulated during the month of August will be debited from your payment account on August 31.
What should you consider?
If there are insufficient funds in your payment account to cover the accumulated interest payment when it is due, your payment may not be processed and may become overdue. If this happens, your line of credit account will be flagged as delinquent (not in good standing), which may negatively impact your credit rating. A non-sufficient funds (NSF) fee may also be debited from your payment account.
Note: As outlined above, normally all interest accrued during the deferral period will be due with the next month's interest payment after the deferral period. We acknowledge this could be a challenge for you, and we are currently working on an alternative solution.
If you are concerned about not having sufficient funds available at the time of repayment, please connect with us prior to the repayment date 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.
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
Our Client Care team will be happy to assist.