How to Get an SBA Disaster Loan

You may not have noticed, but in a post-credits scene at the end of every Dwayne Johnson movie, The Rock dusts off his shredded T-shirt and surveys the smoldering aftermath of the skyscraper or fleet of race cars or San Andreas neighborhood he’s just spent the last two hours destroying. Cocking one eyebrow, he stares into the distance and says to himself, “Well, time to fill out that SBA disaster loan paperwork.”

Not really, we just needed a hook to draw you in to an otherwise dry and serious topic.

What you’ve likely noticed in reality is Hurricane Michael hitting Florida with 155 MPH winds, causing damage that’s still being tallied; or Hurricane Florence inflicting over $17 billion in devastation on North and South Carolina; or the volcano in Kilauea, Hawaii, that’s cost island residents millions; or the hurricane trio of Harvey, Irma, and Maria that wreaked a total of $306 billion in damages in the US in 2017. Not even The Rock could keep up with that disaster schedule.

Between 2017 and 2018, there were a combined 240 federally declared disasters in the US. Hopefully, you and your business won’t be affected by one in the coming year—but should it happen, you may need to learn the ins and outs of an SBA disaster loan.

The coronavirus has hit hard across the world, and small businesses are feeling the effect. Many businesses have lost customers, struggled to stay staffed, or had to close altogether in response to the virus. These effects may be part of an appropriate response to the situation, but that doesn’t make the economic pinch hurt any less for small-business owners.

Fortunately, if your business has been affected by COVID-19, you might be able to get help.

The SBA is offering loans to affected businesses. These loans come with low fixed interest rates. Small businesses get a 3.75% rate, while nonprofits get a slightly lower 2.75%. (Either way, these rates are very low compared to what you’d get from most lenders.)

Now, these loans are earmarked for specific uses. As the name suggests, they’re meant to deal with economic problems resulting from the pandemic. These are some of the approved uses:

• Real estate loan payments
• Other existing debt payments
• Payroll
• Accounts payable
• Other applicable bills

Again, the key is that these loans are to deal with financial issues that COVID-19 has caused for your business. You can’t get one of these loans because you’ve been thinking about expanding to another location or because you want to refinance a higher-interest loan.

Unlike other SBA loans, you get economic injury loans directly from the SBA. You can apply on its website (the preferred method) or by calling 1-800-659-2955.

Before you apply, you should make sure you’re in an eligible area. We know coronavirus feels like a disaster everywhere, but your area needs to be in an officially declared economic disaster area to qualify.

As of this writing, all U.S. states and territories are eligible for SBA disaster loans.

And for future reference, you can always check the current status of your area on the SBA’s Disaster Loan Assistance website.

SBA loans may not be your only option for getting help. Many cities, states, and companies are announcing their own programs. Forbes is collecting a list of these programs that you can check. And of course, keep an eye on your local news.

Good luck with your business’s recovery. And stay safe!

An SBA disaster loan, as the name implies, is a Small Business Administration loan designed to offset damages and financial losses due to unforeseen major disasters, whether they’re tornadoes, hurricanes, earthquakes, floods, or other calamities. Unlike other SBA loans, which come from approved third-party lenders, federal disaster loans are granted directly by the government.

There are the four categories of SBA disaster loans:

• Business Physical Disaster Loans are given to business owners to replace or repair tangible assets, such as property, machinery and equipment, or inventory, should they not be covered by regular insurance. Any size of business, and most nonprofits, are eligible for this loan.
• Economic Injury Disaster Loans (EIDLs) are working capital loans that help businesses meet financial commitments they missed due to a disaster. Eligibility for this loan is limited to small businesses, agricultural co-ops, and private nonprofits.
• Home and Personal Property Disaster Loans aren’t necessarily just for business owners; they’re direct SBA loans designed to help repair or replace primary homes and personal property, including personally owned condo units and apartment buildings.
• Military Reservists Economic Injury Disaster Loans (MREIDLs) offer funding to cover a business’s personnel shortfalls due to active military employees being called up to duty. Amounts loaned depend upon a company’s business interruption insurance and regular operating capital.

Baseline interest rates and term lengths are fairly consistent across all four types of SBA disaster assistance loans, though rates and term lengths may still vary case by case. In the table below, you’ll notice a range of maximum interest rates. That’s because if you get access to outside, non-SBA financing, you’ll have a higher interest rate. The SBA loan program sets its loan amounts, rates, and terms case by case.

If a business you own, or a primary residence, is located within an officially declared disaster area and that disaster’s impact has damaged property, you could be eligible for an SBA disaster recovery loan. Federally recognized disasters include tornadoes, hurricanes, earthquakes, floods, wildfires, typhoons, severe storms, drought, toxic algae, and volcanic eruptions. To be declared a federal disaster area, the governor of the state makes a request of the president, who then makes it official.

Business Physical Disaster Loan eligibility: Businesses of any size, and most private nonprofits, impacted with physical damage by an officially declared disaster.

Economic Injury Disaster Loan eligibility: Smaller businesses, agricultural co-ops, and most private nonprofits, impacted physically by an officially declared disaster and not eligible for financing elsewhere.

Home and Personal Property Disaster Loan eligibility: Primary residences with physical damage as a result of an officially declared disaster. Vacation and secondary homes are ineligible.

Military Reservists Economic Injury Disaster Loan eligibility: Military reservist employee, or employees, called up to active duty, causing a small business to be unable to function at full capacity, resulting in financial shortfall.

If your business doesn’t meet any of the above SBA disaster loan eligibility requirements, check out private-sector alternatives in Business.org's top picks for small-business loans.

You can apply for an SBA disaster loan online, by standard mail, or in person at a disaster recovery center. Your credit profile will be reviewed before an inspector visits your property to fully assess damages. Upon completion, an SBA loan officer will review outside insurance payouts and other financial assistance before determining your eligibility.

The SBA usually makes a decision between two and four weeks; if approved, closing documents will be sent by the administration. Loans may be altered or adjusted if unexpected additional repair costs arise or outside insurance comes through. A first disbursement of $25,000 will be made on business loans with five days of application approval.

Business owners should expect to provide the SBA with this information:

• Address of business
• Tax ID number
• Legal business entity type
• Business insurance details
• Personal contact information
• Personal financial statements
• Liability and debut schedules
• Recent business tax returns

Homeowners should expect to provide the SBA with this information:

• Personal contact details
• Salary/employment information
• Address and insurance details of damaged property
• Currently held assets and debts
• Extra expenses (tuition, alimony, child care, etc.)
• History of bankruptcies, delinquencies, judgements, lawsuits, or criminal records, if applicable

• SBA Disaster Loan Assistance – Further information and applications for loans discussed above
• FEMA.gov – Information on FEMA grants and how they relate to SBA disaster loans
• AmeriCares – A US and international disaster relief organization
• InterAction – Listing of organizations that respond to disasters internationally
• ReliefWeb – Disaster relief community information and news
• Insurance Information Institute – Information on how to settle disaster insurance claims

After you’ve signed and returned the loan closing documents, an initial disbursement of $25,000 will be sent to you within five days of the SBA receiving the materials. You’ll be assigned a case manager who’ll guide you through meeting loan conditions and also schedule all future disbursements until you’ve received the entirety of the loan.

For disaster loans specifically, you can contact the SBA at 800-659-2955 (voice) or 800-877-8339 (text). The contact email is DisasterCustomerService@sba.gov.

The Federal Emergency Management Agency doesn’t offer grants (loans that don’t need to be repaid) to businesses, only individual homeowners and renters. But to qualify for a FEMA grant, you have to first apply for an SBA Home and Personal Property Disaster Loan before being considered.

Disasters―whether physical or economic―can take a big toll on your business. Luckily, you don’t have to face it alone. With the help of SBA disaster loans, your business can take advantage of low-interest loans.

We hope you never face a business disaster. But if you do, make sure you’re using all your resources to recover―including SBA disaster loans.

Not eligible for disaster loans right now? Learn more about other low-interest SBA business loans you may qualify for.

Disclaimer

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