What SBA Disaster Loans Are & How To Qualify For One

The market can be fickle enough, but what happens when you drop an external catastrophe into the mix? Whether your area was affected by a wildfire, tornado, record-setting hurricane, a pandemic, or another catastrophic event, the next steps can feel daunting or overwhelming. Many home and business owners find that insurance won’t cover as much as they thought — and that leaves a large gap between where they are now and the ability to move forward with everyday life as usual. With the timelines of many disasters uncertain, it may be some time before your business revenue returns to normal.

Thankfully, there is an option to finance the funds needed to rebuild — funds that can help not only business owners but homeowners as well. Offering no upfront fees, no penalties for paying off the loan early, and low-interest rates, an SBA disaster loan can help you begin to put the pieces back together after a life-altering event.

What Are SBA Disaster Loans?

While the primary mission of the Small Business Administration is to support entrepreneurs, with special programs focused on women, veterans, low-income, and minority business owners, this agency also offers low-interest loans to assist business owners, homeowners, and renters after a disaster. No matter where you fall in the insurance spectrum — whether you’re covered well, are underinsured, or have no protection — FEMA recommends applying for an SBA loan to cover gaps in insurance coverage or to provide bridge funding before the insurance check arrives.

Read on to find out more about the types of SBA disaster loans and to find the option that fits your situation best. It’s time to get the financing you need to recover your business and your life.

Economic Injury Disaster Loans

The Economic Injury Disaster Loan Program (EIDL) provides financial assistance to both small businesses and private, nonprofit organizations that are located in a declared disaster area. Coverage depends on the amount of economic injury sustained. That includes things that don’t cause property damage, such as COVID-19, but still result in a massive loss of demand due to circumstances beyond your control or that interrupt your ability to conduct business. Coverage for an economic injury disaster loan is capped at $2 million, but the amount you can finance is based on the actual economic injury you’ve sustained after a disaster. So if sales have dipped because people simply can’t get to your storefront location or the area was closed, but your property isn’t damaged, for instance, an economic injury disaster loan may be able to help you cover costs associated with the loss of business.

Am I Eligible For The Economic Injury Disaster Loan Program?

To be eligible for an Economic Injury Disaster Loan through the SBA, you’ll need to be located in a disaster declared county or a contiguous county. This type of loan is open to private organizations or small business owners who have sustained an economic injury because of the declared disaster. Also, repayment terms will be dependent on your ability to repay the loan.

Your first step in learning more is to visit the SBA’s Disaster Loan Assistance page where you can look up eligible disaster areas, apply online, and check your application status. Read on to learn more about the qualifications and other frequently asked questions in the proceeding sections below.

COVID-19 Disaster Relief

At the time of this update, the US is dealing with severe economic fallout due to the COVID-19 pandemic, making many small businesses in most states eligible for Economic Injury Disaster Loans. Given the sheer scale of the pandemic, there’s a very good chance your county will eventually qualify, but nevertheless, you’ll want to check and be sure before you try applying.

The SBA is expecting small businesses to run into problems in a number of different areas, including:

• Capital access
• Workforce capacity
• Inventory and supply chain shortfalls
• Facility remediation and clean-up costs
• Insurance coverage issues
• Demand changes
• Marketing needs

Economic Injury Disaster Loans offered for COVID-19-affected businesses can be used to pay debts, payroll, accounts payable, and other expenses related to difficulties caused by the virus. Note that you must not have other sources of credit available to qualify for these loans.

The interest rate for these loans is 3.75% for small businesses and 2.75% for nonprofits. They have a maximum term length of 30 years, though the exact terms will vary, depending on your circumstances.

Business Physical Disaster Loans

If your business has sustained physical damage in a declared disaster area, you can apply for a physical disaster loan to receive the financial assistance you need to move ahead. There is no business too small or too large to apply — and most nonprofit organizations may also be eligible for an SBA loan to help rebuild after a disaster strikes.

Repayment terms can be flexible and will depend on your ability to repay the loan. Your repayment period can be up to 30 years with an interest rate that will not exceed 4% if you cannot obtain credit with another source and no more than 8% for those who have available credit options elsewhere.

How Can I Tell If My Area Is A Declared Disaster?

To check all currently declared disasters and determine if you can apply for disaster loan assistance, visit the US Small Business Administration webpage for more information. You’ll find a listing of states, incidents, and affected incident periods.

If you know you are in a declared disaster area and you have sustained physical damage to your business, the next steps you need to take are to visit the SBA site and begin the application process for disaster loan assistance.

What Can An SBA Physical Disaster Loan Be Used For?

Business physical disaster loans from the SBA “must help return damaged property to its predisaster condition through repairs or replacements.” Funds can be used to purchase or repair machinery, equipment, fixtures, inventory, and, of course, building improvements — anything at your physical location that was damaged by the disaster. If you make improvements that help reduce the risk of future property damage from a similar source, you can potentially be eligible for up to a 20% increase in your loan value.

Home & Physical Property Disaster Loans

As mentioned at the beginning of the post, the SBA typically focuses on supporting the entrepreneur through small business growth. However, if you’re a homeowner or renter in a declared disaster area, you may also find help to rebuild from the US Small Business Administration. The SBA offers home and property disaster loans — affordable financial assistance in the form of long-term, low-interest loans for any loss that isn’t covered by your insurance or other coverage means.

How Much Can I Borrow?

To repair your home to its predisaster state, you can borrow up to $200,000 — but you won’t be able to use this as working capital to upgrade or make any additions to your home unless a building authority or code update requires it.

In addition to repairing structures, you also might be able to borrow up to $40,000 to replace your personal property, such as clothes, furniture, or other contents in your home. You can’t use the funds to replace antiques, collections, a pleasure watercraft, or recreational vehicles, however.

If you are a homeowner or renter who needs to rebuild in a declared disaster area, this option from the SBA can be the boost needed to move ahead.

What Types Of Businesses Are Eligible For SBA Disaster Loans?

In addition to your business being located in an officially declared disaster area, there are some other guidelines to keep in mind when it comes to eligibility. Most of the qualifications to receive an SBA loan are covered in the answers to the most commonly asked questions below. In a nutshell, it’s going to come down to your location, creditworthiness, ability to repay, and collateral.

More About The SBA Disaster Loan Process

Does The SBA (Or FEMA) Perform Credit Checks?

Yes, to obtain a disaster loan, you will need to demonstrate a history of creditworthiness. The SBA will perform a credit check. If you’re worried that your lack of credit history will deter you from getting the funds you need, take heart — there’s another route to demonstrating your ability to pay. The SBA will examine your history of paying utilities, rent, or insurance as positive evidence that you can repay.

It’s a wise move to know your credit score before you apply so that you can be prepared. Take advantage of some of the best free places to check your credit and stay informed.

What About Disaster Relief Loans For Bad Credit?

As stated above, the SBA will perform a credit check on your accounts. While you need to show you have regularly made payments on accounts, you don’t need to be too concerned if you have a few negative marks on your credit report as long as the majority of your accounts are in good standing with the reporting agencies.

Do I Need Collateral?

If you need more than $25,000, the SBA will likely require collateral to secure your loan. Typically, the SBA accepts real estate or other assets to secure your loan, but don’t be too discouraged if you don’t have collateral. If you are otherwise eligible for an SBA Economic Injury Disaster Loan and have no collateral to provide, for instance, you may simply be required to pledge what is available instead of being denied. The program is set up to be as accessible as possible, so you will be considered whether you have collateral or not.

How Are Disasters Declared?

Only businesses located in an officially declared disaster area can access SBA disaster loans. Generally, there are seven ways a disaster can be declared:

1. A Presidential Declaration for Individual Assistance is requested by the governor of a state. The presidential declaration activates FEMA and will automatically make SBA disaster loans accessible to businesses and private, nonprofit organizations.
2. An Administrative Agency Declaration can be made by the governor of the state, which activates the SBA’s disaster loan program, making loans available to businesses, homeowners, and renters alike.
3. A Presidential Declaration for Public Assistance can also be requested by the governor. Once the President approves, business physical damage and economic injury loans are made available.
4. The Secretary of Agriculture can declare a disaster area. The SBA will then also announce the availability of disaster loans relating to businesses engaged in agriculture.
5. A Governor Certification Declaration occurs when a governor goes to the SBA directly and requests a declaration based on certification of the damages an area has.
6. The Secretary of Commerce may determine that some eligible small businesses have economic injury directly related to commercial fishery failures or resource disasters.
7. A Military Reservist Declaration can be made for individuals who are considered “essential employees” and are called up to active duty as military reservists during a period of military conflict. Working capital loans can be made available to businesses that aren’t able to meet ordinary and necessary operating expenses due to the absence of essential employees.

SBA Disaster Loan Terms & Rates

The table below will give you a quick peek of terms and rates for the two business-focused SBA disaster loans — the Economic Injury Disaster Loan and the Business Physical Disaster Loan.

SBA Disaster Loan Application Process

As mentioned above, your first step in the application process for an SBA disaster loan is to fill out an application at the Disaster Loan Assistance portal through the SBA. Here, you will be able to verify whether you’re in a disaster area, apply online (or find the phone numbers you need), and check on your application once it’s submitted.

When you’re trying to recover from a disaster and start rebuilding, time is of the essence. This is why it’s important to begin gathering the documents you’ll need to keep things moving forward:

• Start making an itemized list of your losses
• Include estimates to repair or replace items
• Obtain a copy of the necessary federal document (income tax information) that is referenced in the application
• Provide a brief history and overview of your business
• Gather business and personal financial statements

The good news is that, unlike a typical SBA loan, funding for an SBA disaster loan can be completed in as little as seven to 21 days. You may receive your funds in increments as you begin repairing to cover the necessary costs.

Need An Alternative To Federal Disaster Loans?

If you’re forced to seek alternatives to an SBA loan, you’ll find you do have other options. Whether the SBA denies disbursement or you simply want to shop around and find the best financing options for your particular situation, check out our Small Business Loan Comparison page for more information. With an online loan, you may be able to get your funds faster. You’ll want to pay attention to rates and repayment terms; these will typically be less attractive than what the SBA can offer.

After a disaster, you may feel that you’re treading water for a while. Fortunately, with the help of disaster assistance loans, you do have hope and resources to make progress again. Follow the references listed above to learn more and start the healing and recovery process. Remember not to assume you won’t qualify before taking reading through our guide to qualifying for an SBA loan. We can also help you get a sense of how much your loan will cost and keep you updated on the SBA’s current rates.

SBA Disaster Loan FAQs