As a business owner, figuring out what to do after being affected by a natural disaster can be overwhelming. You may find that your insurance covers a lot less than you think, and you may not see a clear path forward. A low-interest SBA disaster loan can help you get back on the right track.

This guide will outline the benefits that come with applying for this loan and everything you need to know to apply.

What Is an SBA Disaster Loan?

The Small Business Association offers disaster loans for those affected by natural disasters such as hurricanes, droughts or fires. They are low-interest, long-term loans to provide relief for physical and economic damage caused by devastating natural events.

What’s interesting about this type of loan is that it’s the only loan program the SBA offers where they lend directly to borrowers. For the most part, SBA guarantees other lenders’ loans, making disaster willoans a departure from the rest.

What Are the 4 Types of Disaster Loans?

There are four types of SBA disaster loans that provide up to $2 million in aid to business owners and up to $200,000 to homeowners in a declared disaster area.

1. Home and Personal Property SBA Disaster Loans

Because the SBA focuses on helping small businesses, some might be surprised to learn that they offer assistance to homeowners as well. Home and Personal Property loans are available to those who have experienced damage to their home or personal property due to a natural disaster.

2. Business Physical SBA Disaster Loans

Business physical loans are for business owners who need to replace tangible business assets that their insurance will not cover. They are available to businesses of any size, as well as most private nonprofit organizations. Business physical loans are the most common type of disaster loan.   

3. Economic Injury SBA Disaster Loans (EIDL)

The EIDL is for those businesses that need assistance in meeting financial obligations because of a disaster. Small businesses, small agricultural cooperatives, and most private nonprofit organizations can take advantage of this loan. EIDL is another common type of disaster loan.

4. Military Reservists Economic Injury SBA Disaster Loans (MREIDL)

The MREIDL is a niche loan category. It’s for businesses facing economic hardship due to an active military employee being called to duty. The loan amount is calculated based on a company’s business interruption insurance and regular operating capital.  

Do You Qualify for an SBA Disaster Loan?

The SBA disaster loan requirements are relatively straightforward.

Your business or private non-profit organization must be located in a declared disaster area (it’s important to check that your area has been declared as such before applying). The federal government recognizes disasters such as earthquakes, wildfires, floods, hurricanes, drought, typhoons and tornadoes.

Being located in a disaster area is not the only requirement, however. Your business needs to have suffered physical damage or economic harm as a result of that event.

Aside from meeting these requirements, there are additional credit requirements for the SBA disaster loan.

What Can I Use Disaster Loans from the SBA for?

What you can use disaster loans for depends on the loan type, but in general, business owners can use them for many things including:

  • Repairing damaged real estate
  • Replacing personal property
  • Fixing machinery and equipment
  • Replacing broken or damaged inventory

Can You Get an SBA Disaster Loan with Bad Credit?

Part of the application process includes a credit check, so you should know your credit score before applying for an SBA loan. There are many places online you can check your credit score, such as Equifax, Experian or TransUnion.

When it comes to SBA disaster loan credit score requirements, there’s no hard and fast minimum credit score to be accepted. Typically, the SBA will want to see a credit score of 620 or higher.

Does your credit report have a few dings on it? If you’re not quite at the 620 mark, you may still qualify for a disaster loan. The SBA looks at other factors in determining eligibility, such as whether or not you consistently pay your rent and utilities.

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

Will I 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’s also possible for them to accept a personal guarantee instead of collateral.

That said, if you have no collateral, the SBA does not 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.

SBA Disaster Loans Interest Rates & Terms

Since they’re meant to help business owners in times of need, SBA disaster loan interest rates and terms are relatively forgiving.

For the two business-focused disaster loans, economic injury and business physical, you can expect to pay a maximum interest rate of 4% if you have no credit available elsewhere. SBA disaster loans interest rates for businesses that do have credit available to them have a maximum interest rate of 8%.

As for terms, SBA disaster loan terms can last up to 30 years. We recommend taking a look at our guide to calculating your business loan repayment schedule for more information about how to manage your loan payments.

What Information Do I Need for an SBA Disaster Loan Application?

Now let’s address your most pressing question: how hard is it to get an SBA disaster loan?

While not incredibly difficult, applicants need to be prepared to gather various documents, some of which may take some time. These are some of the things you’ll need to provide in your application:

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

The SBA Disaster Loan Process

The first step in applying for disaster loans with the SBA 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 is not a requirement to begin the loan process. We don’t recommend waiting around to do this, however.

Once you’ve gathered all your documents, it’s time to submit your application. You can apply online, in person at a disaster recovery center, or by standard mail.

After the SBA receives your application, they 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 two and four weeks to hear back about the status of your disaster loan. If approved, you will receive the first disbursement of $25,000 on business loans within five days.

How Long Can I Wait to Apply for an SBA Disaster Loan?

An area must be officially declared a disaster zone by the president before you can apply for a loan, but once it has been made official, don’t wait to start the process. You have up to sixty days from the date the disaster was declared to apply, so although you may have other pressing concerns, don’t delay.

What If My Application Is Denied?

SBA disaster loans can be rejected for a few different reasons. The most common ones are having a shaky credit history and a demonstrated lack of ability to repay loans.

If you’ve been denied, you have up to six months to submit an appeal to the SBA’s Disaster Assistance Processing and Disbursement Center (DAPDC). Should your application be denied a second time, you have another opportunity to appeal the decision.

Disaster Relief Resources

Keep in mind that there are a variety of resources to help business owners and others affected by disasters.

  • FEMA—information about FEMA grants and their relation to SBA disaster loans
  • AmeriCares—an organization that provides disaster relief in the U.S. and internationally
  • Insurance Information Institute—information on settling insurance claims after a disaster
  • ReliefWeb—information regarding disaster relief

For More Information

You should now have a reasonably good grasp on disaster loans and whether or not they’re right for you. If you think you qualify, it’s a good idea to work with a lending specialist for additional assessment. We also recommend visiting the SBA’s website for further reading about SBA disaster loans.