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SBA Disaster Loans: Requirements and How to Apply

Barb Weidner

Small Business Administration (SBA) disaster loans offer business owners options when they try to recover from natural disasters, pandemics and other emergency situations.

We’ll explain what you need to know to apply for an SBA disaster loan and outline the benefits that come with this kind of government-backed financing. 

SBA Disaster Loan first aid kit

What Is an SBA Disaster Loan?

An SBA disaster loan is provided by the SBA to provide relief to businesses enduring physical and economic damage caused by devastating events including hurricanes, droughts, fires or pandemics such as the novel coronavirus. 

Disaster loans are the only SBA financing program in which the federal agency lends directly to borrowers, instead of guaranteeing a percentage of other lender’s loans.

  • SBA Disaster Loan Requirements

    How hard is it to get an SBA disaster loan? The requirements are relatively straightforward.

    To qualify, your business or private nonprofit organization must be located in a declared disaster area. Check the SBA’s declared disasters webpage before applying. The federal government recognizes disasters such as earthquakes, wildfires, floods, hurricanes, drought, typhoons and tornadoes, among other events.

    In addition to being located in a disaster area, your business must have suffered physical damage or economic harm because of the event. For example, SBA disaster loans can be used to renovate an office space damaged by a natural disaster or get a business back on its feet after being forced to close because of a global pandemic such as the novel coronavirus.

    You’ll have to show proof of the economic damage that the disaster has caused to be eligible. In cases where businesses seek funding for repairing physical damage, applicants must first file an insurance claim. The SBA disaster assistance program only will provide funding for damage that isn’t covered by insurance.

What Are the 4 Types of Disaster Loans?

There are 4 types of SBA disaster loans that provide aid to business owners and homeowners in a declared disaster area:

1. Home and Personal Property SBA Disaster Loans

Home and personal property loans are available to those who have experienced damage to their primary residence or personal property—such as clothing, furniture or a car—because of a natural disaster. Homeowners can obtain funding up to $200,000 to repair or replace their homes; renters and homeowners can borrow up to $40,000 to repair or replace personal property.

2. Business Physical SBA Disaster Loans

Business physical loans, the most common type of SBA disaster loan, are for business owners who need to replace tangible business assets their insurance won’t cover. Businesses of all sizes and most private nonprofit organizations can apply for up to $2 million in funding to repair or replace machinery, inventory, property or other assets.

3. Economic Injury SBA Disaster Loans

The Economic Injury Disaster Loan (EIDL) program is for businesses that need assistance meeting financial obligations because of a natural disaster or pandemic. Small businesses, small agricultural cooperatives and most private nonprofit organizations can apply for up to $2 million from this type of SBA disaster loan. 

  • Note

    SBA disaster loans have been opened to small businesses responding to the challenges faced by Covid-19 (the novel coronavirus) in 2020. 

    Reach out to your local SBA office if you need assistance recovering from an economic injury because of the pandemic to learn more about how your business could use an SBA disaster loan.

4. Military Reservists Economic Injury SBA Disaster Loans

The Military Reservists Economic Injury Disaster Loan (MREIDL) program provides funding for businesses facing financial hardship because an active military employee is being called to duty. The loan amount is calculated based on a company’s business interruption insurance and regular operating capital. 

Qualified businesses can apply for a maximum of $2 million, but that can be waived “if the business is a major source of employment,” according to the SBA.

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SBA Disaster Loan Interest Rates

Because they’re meant to help business owners in times of need, SBA disaster loan interest rates are relatively forgiving compared with the rates of conventional financing.

For business physical disaster loans, the interest rate won’t exceed 4% if you can’t obtain credit elsewhere. For businesses that do have credit available, the interest rate won’t exceed 8%. 

As for EIDL interest rates, they won’t exceed 4%, but a small business won’t receive this assistance if the SBA determines the business has credit available elsewhere.

SBA Disaster Loan Terms

SBA disaster loan terms can last up to 30 years, depending on certain factors. The repayment terms you receive are determined by your loan amount, credit score and your company’s perceived ability to repay the loan.

Because of the forgiving nature of the program, SBA disaster loan payments can be much lower than alternative options because of these lower rates and extended terms.

  • Determining a Loan Repayment Schedule

    Take a look at our post on calculating your business loan repayment schedule for more information about how to manage your SBA disaster loan payments.

The SBA Disaster Loan Application Process

The first step in applying for SBA disaster loan assistance is to submit an insurance claim. Submitting a claim is important because the SBA will only pay you for damage not covered by insurance, though having filed a claim isn’t a requirement to begin the loan process. However, don’t wait to do this.

SBA Disaster Loan Application Instructions

Once you’ve gathered all your documents, it’s time to submit your application. You have up to 60 days from the date the disaster was declared to apply. You can apply online, in person at a disaster recovery center or by mail.

  • Information You’ll Need to Apply for an SBA Disaster Loan

    These are some of the documents you’ll need to provide in your application:

    • The tax identification number and legal business entity type
    • Most recently filed tax returns for the business and possibly for the business owners
    • A schedule of liabilities
    • Personal financial statements
    • Business insurance information
    • Individual contact information

After the SBA receives your application, the agency will review your credit profile before conducting an on-site inspection to verify the extent of the damage. Once the investigation is complete, the SBA determines your eligibility based on other financial aid and outside insurance disbursements. Expect to wait between 2-4 weeks to hear about the status of your disaster loan.

How are SBA Disaster Loans Disbursed?

SBA disaster loans are disbursed in increments unlike other SBA loan programs, which give you the full amount at signing. If approved, you’ll receive the initial SBA disaster loan disbursement of $25,000 within 5 days.

A case worker will be assigned to monitor your progress and schedule subsequent disaster loan disbursements. This is so the SBA can determine whether you need additional funding because of ongoing circumstances or a reduced amount because of an increase in insurance coverage.

Bad credit with hand holding meter sign

Can You Get an SBA Disaster Loan With Bad Credit?

When it comes to SBA disaster loan credit score requirements, there’s no hard and fast minimum credit score you’ll need for approval. However, the SBA usually wants to see a credit score of 620 or higher.

If you aren’t quite at the 620 mark, you might still qualify for a disaster loan. The SBA looks at other factors to determine eligibility, such as whether you consistently pay your rent and utility bills.

As long as you’re mostly in good standing with credit-rating firms, a few strikes against you on your credit report shouldn’t be too much cause for concern.

Will You Need Collateral?

If you’re asking for a loan of more than $25,000, the SBA does require collateral such as a first or second mortgage, vehicle or other assets. It also is possible the SBA will accept a personal guarantee instead of collateral.

However, if you don’t have collateral, the SBA doesn’t automatically exclude you. SBA disaster loans are designed to be accessible, so they will consider you even without traditional types of collateral. You may be asked to pledge what is available.

What If My SBA Disaster Loan Application Is Denied?

SBA disaster loan applications can be denied for a few different reasons — the most common being a shaky credit history and a demonstrated inability to repay the loans.

If you’ve been denied an SBA disaster loan, you have up to 6 months to submit an appeal to the SBA’s Disaster Assistance Processing and Disbursement Center (DAPDC). If your application is denied again, you have another opportunity to appeal the decision.

Barb Weidner CEO at Fast Capital 360
Barb Weidner is the co-founder and CEO of Fast Capital 360, a leading online business loan marketplace. Prior to entering the Fintech space, Barb was the Chief Credit Officer for a mid-sized mortgage bank based in NY. Barb is passionate about simplifying the lives of small business owners and empowering them with the resources they need to thrive.
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