If a disaster hits your area, the U.S. Small Business Administration (SBA) may offer financing to help you recover. SBA disaster assistance loans provide funds for rebuilding or repairing structures and for meeting financial obligations, such as payroll.
This guide explains how the SBA disaster assistance program works, including how direct loans differ from SBA-backed Express loans. Explore business requirements, SBA disaster loan interest rates, and terms, along with tips to streamline application processing and approval.
What is the SBA disaster assistance program?
The SBA disaster assistance program provides low-interest, long-term loans to eligible businesses of all sizes, most private nonprofit organizations, homeowners, and renters in declared disaster areas. In addition to offering disaster assistance loans, the SBA’s Office of Disaster Recovery and Resilience strives to improve disaster response and recovery efforts. It helps individuals and businesses prepare for emergencies, assess risks, and develop plans.
How do SBA disaster loans work?
After a formal disaster declaration from the President or the SBA administrator, disaster loans become available. To qualify, you must be located in the declared disaster area. There are seven types of declarations. Use SBA’s online disaster declaration search tool to see active bulletins.
SBA disaster assistance loans are direct loans, meaning the government is the lender. You apply for disaster loans through the SBA, not a bank or third party. The SBA processes your application and issues funds. This differs from other SBA-backed programs, where you work with SBA preferred lenders, like SBA 7(a) loans or Express Bridge Loans.
Where do you apply for disaster loans?
Apply for SBA disaster assistance loans through the MySBA Loan Portal or in person at an SBA Disaster Recovery Center. Use the SBA’s search tool to see declared disaster areas and fill out the online application. Before applying, experts recommend gathering your business documents. Use our documentation checklist and learn how to apply for SBA disaster relief loans to streamline the process.
SBA disaster assistance loans: types, eligibility, and terms
SBA disaster loan requirements may differ by declaration. Understanding the basics and lining up the right resources before an economic downturn or disaster can help your small business respond faster.
Here are the key things to know about most SBA disaster assistance loans:
- You must be in a declared disaster area to be eligible for SBA disaster relief loans.
- Generally, business loans are capped at $2 million, even when combining business physical damage and EIDLs.
- If your home and business are damaged, the total of all loans can’t exceed $2 million for pass-through entities, like solopreneurs. Corporations have separate limits for home and business loans.
SBA Business Physical Disaster Loans
Business physical disaster loans help you repair or replace damaged or destroyed physical assets after a disaster. Any-sized businesses and private nonprofit organizations may be eligible for physical disaster loans. Agricultural enterprises, like farms and ranches, don’t qualify because their disaster assistance is provided by the U.S. Department of Agriculture (USDA).
You can use this type of loan for buildings, machinery, inventory, and equipment. Recreational vehicles may be covered if you submit proof that you used them for business.
- Maximum loan amounts: Up to $2 million.
- Interest rates: No more than 4% if you can’t get credit elsewhere or 8% if you can.
- Terms: Up to 30 years.
SBA Economic Injury Disaster Loans
Economic Injury Disaster Loans (EIDLs) help your small business cover day-to-day expenses so it can stay open after a disaster. Funds are available to small businesses, small agricultural cooperatives, and private nonprofits in designated areas. Only applicants who can’t get non-federal loans qualify. You must demonstrate that the crisis caused significant economic damage and, had it not occurred, you could have met your financial obligations. Declining sales don’t count.
EIDLs must be used as working capital to cover normal expenses, such as payroll, health care benefits, and accounts payable. You can’t buy fixed assets or repair physical damage.
- Maximum loan amounts: Up to $2 million.
- Interest rates: 4% or less.
- Terms: Up to 30 years.
Military reservist loan
The Military Reservist Economic Injury Disaster Loan (MREIDL) helps you stay afloat when an integral employee or owner is called to active service. To qualify, the military reservist must be called up for more than 30 days in a row, and the small business must show that the absence is causing, or would cause, substantial financial harm. You and anyone who owns 20% or more of the company must use all available funds within reason and be unable to obtain credit elsewhere.
You can use military reservist loans for operating expenses or to cover the costs of regularly doing business that you can’t do because of an essential employee’s military call-up, like marketing, producing, or providing products or services.
- Maximum loan amounts: Up to $2 million, unless an exception is authorized.
- Interest rates: 4%.
- Terms: Up to 30 years.
Home and personal property loans
Renters and homeowners can apply for personal property loans to repair or replace vehicles, furniture, or clothing. Real property loans help homeowners rebuild or fix their primary residence. Home loans can be increased to cover mitigation improvements.
- Maximum loan amounts: Up to $500,000, real property; up to $100,000, personal property.
- Interest rates: No more than 4% if you can’t get credit elsewhere or 8% if you can.
- Terms: Up to 30 years.
The longer it takes to prove feasibility and creditworthiness, the longer you wait for funds. Be prepared by developing a recession-proof business plan and tracking your personal and business credit scores.
Compare EIDL vs. physical disaster vs. SBA Express Bridge Loans
An SBA Express Bridge Loan (EBL) provides up to $25,000, while EIDL and physical disaster loans offer up to $2 million. The SBA directly finances disaster assistance loans, whereas participating banks or alternative lenders fund Express Loans.
Let’s go through how SBA Express Bridge Loans differ from SBA disaster assistance loans:
- Interest rates: SBA direct disaster loans charge a fixed 4% interest rate for those who can’t get credit elsewhere. The maximum for Express Loans is the prime rate (currently 7%) plus 6.5% and can be fixed or variable.
- Loan terms: SBA Express Loan lenders can offer up to seven-year terms or require borrowers to repay the loan if approved for disaster financing. EIDL and physical disaster loans have 30-year terms.
- Application and processing: You must have a banking relationship with an SBA Express lender before the disaster to get a loan. It’s an expedited process but could take up to a month. Any eligible business can apply through the SBA for disaster funds, and processing times depend on volume, ranging from three weeks to months.
When to use SBA Express Loans vs. EIDL or physical disaster loans
Small businesses have to prepare for a credit crunch in emergencies. But many need help covering operating or repair expenses until insurance funds arrive and their community stabilizes.
Here’s when it makes sense to use Express, EIDL, or physical disaster loans:
- Economic injury disaster loan: Revenue decreased, supply chains were disrupted, or contracts were canceled, making it tough or impossible to pay employees and bills. You want a long-term, low-interest loan to maintain operations while recovering.
- Business physical disaster loan: Your company’s building, equipment, or inventory was damaged or destroyed by a storm, fire, or flood. You want a loan because you’re unsure of insurance coverage, or you want mitigation assistance to reduce future risks.
- Express Bridge Loan: Your business will go under without immediate cash, and you have worked with an SBA preferred lender before. You expect the SBA to approve an EIDL or physical loan and believe you can repay the Express Loan.
How to speed up approval of disaster assistance loans
Incomplete applications, missing documents, or inaccurate information delay SBA disaster loan processing. Avoid missteps by planning for business continuity.
Use these tips to speed up disaster loan approvals:
- Have a key document folder: Application information must match IRS records for all owners and interested parties. Create a company profile sheet and contact list that includes business formation records and ownership details.
- Improve resilience before an emergency: The longer it takes to prove feasibility and creditworthiness, the longer you wait for funds. Be prepared by developing a recession-proof business plan and tracking your personal and business credit scores.
- Use accounting tools: Owners often make mistakes in their financial records, such as failing to disclose all liabilities or providing unrealistic financial forecasts. Small business accounting software organizes accounts so you get it right the first time.
- Be diligent about personal finances: All disaster loans are backed by a personal guarantee and require disclosure about all personal assets and liabilities. Commonly, owners fail to include debts or assets shared with a spouse or co-signed for a child.
- Back up and centralize records: Organize PDFs, photos, and files so they are accessible in an emergency. Remember to store digital documents securely, taking proactive steps to regularly back up files and protect your business from ransomware attacks.
Required documents for SBA disaster business loans
Before filling out the SBA disaster loan business application, collect information about general partners, managers, and anyone who owns 20% or more of the business. Also, keep your most recent federal tax return and insurance policies nearby.
At a minimum, the required documents for SBA disaster loans include:
- Personal financial statements (SBA Form 413) for owners, managers, and anyone with 20% or more interest.
- Business schedule of liabilities listing all debts, using your own form or SBA Form 2202.
- Request for Transcript of Tax Returns (IRS Form 4506-C) from applicants, partners, anyone with a 20% stake, and any owner with over 50% ownership in an affiliate business.
In addition, the SBA can’t complete all processing of military reservist loans until they get a copy of your essential employee’s official call-up orders. Loan officers may request supporting documents to verify economic injury, assets, and expenses. They may also ask for financial reports, like a balance sheet and profit and loss statement.
Nicole Fallon contributed to this article.
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