SBA Disaster Loans: What You Need to Know

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SBA disaster loans are open to business owners, homeowners and renters needing financial assistance to recover from local disasters, such as tornadoes, floods and fires.

The U.S. Small Business Administration (SBA) offers loans to eligible borrowers in federally declared disaster areas. You could put SBA disaster assistance toward damage to real estate, personal property, equipment and inventory, or general economic injury.

What is an SBA Disaster Loan?

An SBA disaster loan is funded directly through the SBA after a declared disaster occurs. The SBA issues low-interest, long-term loans to businesses, nonprofit organizations, homeowners and renters.

SBA disaster assistance is the only SBA program that provides direct loans to borrowers. Other SBA loan programs, such as the 7(a) loan program, provide an SBA guaranty on loans issued through banks or other financial institutions.

Types of available SBA disaster loans include:

Business Physical Disaster Loans

Business owners may receive up to $2 million to repair or replace real assets, such as:

  • Property
  • Machinery or equipment
  • Fixtures
  • Inventory
  • Leasehold improvements

These loans are meant to offset losses not fully covered by your insurance. Businesses of any size and most private nonprofits are eligible to apply for these loans.

Economic injury disaster loans (EIDL)

EIDLs are meant to help businesses meet financial obligations they would have met otherwise if not for the disaster. Only small businesses, small agricultural co-ops and some private nonprofit organizations are eligible. You could receive up to $2 million to cover operating expenses, though your loan amount would be based on the SBA’s determination of the actual economic injury the business incurred and its financial needs.

Home and personal property loans

The SBA provides loans up to $200,000 for homeowners whose primary resident needs repair or replacement because of a declared disaster. Renters, as well as homeowners, may borrow up to $40,000 to cover personal property damaged in a disaster. However, unless your local building code requires it, you can’t use the funds to make upgrades or additions to your home.

Military reservists economic injury disaster loans (MREIDL)

MREIDLs are meant to cover operating costs if an essential employee is called up to active duty as a military reservist. MREIDLs are available up to $2 million but the SBA may limit the loan amount based on the business’s interruption insurance, or if the business had enough money to function without the employee.

Express Bridge Loan Pilot Program (EBL)

This program allows for qualified SBA lenders with SBA Express authority to deliver expedited disaster loans up to $25,000 during emergencies. These loans could give business owners immediate funding as they consider applying for more longer term financing.

Borrowers must be located in a federally-declared disaster area. The EBL Pilot Program is effective until Sept. 30, 2020 and differs from other disaster loan programs because loans are provided through Express lenders, not the SBA. Borrowers affected by COVID-19 can apply for Express Bridge Loans through March 13, 2021.

SBA Disaster Loan Interest Rates and Terms

The SBA sets maximum loan amounts, repayment terms and interest rates for all disaster loans. Here’s a sample of what you can expect:

Business Physical and Economic Disaster LoansHome and Personal Property Disaster Loans
Maximum Loan Amount$2 million
  • $200,000 for primary home
  • $40,000 for personal property
Maximum Repayment Term30 years30 years
Maximum Interest Rates
  • Up to 4% if you don’t have financing available elsewhere*
  • Up to 8% if you do have financing available elsewhere
FeesNo upfront SBA feesNo upfront SBA fees
CollateralRequired for EIDL loans exceeding $25,000**Required for loans exceeding $25,000**
Joint applicants allowed?YesYes

*No credit elsewhere requirement waived for businesses affected by the coronavirus crisis.

** The SBA won’t deny your application for a disaster loan solely based on lack of sufficient collateral, but you’ll have to pledge what you have available.

A case study: Hurricane Harvey

As the chart shows, the SBA interest rates listed above are absolute maximums. Because the SBA sets different rates for each disaster, actual interest rates will vary.

After Hurricane Harvey, for instance, the interest rates for physical disaster loans were 3.305% for businesses with no credit available and 6.61% for businesses with credit available. Home and personal property loans carried rates of 1.75% and 3.5%, respectively. Economic injury loans had interest rates of 3.305% for small businesses and agricultural co-ops and 2.5% for nonprofits.

SBA Disaster Loan Eligibility Requirements

To be eligible for an SBA disaster loan, you must live or own a business in an area where the SBA makes a disaster declaration. The SBA maintains a list of current declared disasters.

From there, you also need to meet one of the following SBA disaster loan qualifications:

Business Physical Disaster LoansBusiness Economic Injury Disaster LoansHome and Personal Property Disaster LoansExpress Bridge Loan Pilot Program
  • Any business and most private nonprofits affected physically
  • Small businesses, small agricultural co-ops and most private nonprofits affected economically
  • Own a primary residence that the disaster affected
  • Secondary and vacation homes aren't eligible
  • Any small business located in counties of declared disaster areas, or in any bordering counties
  • Business must have been operating during time of disaster

How to Apply for SBA Disaster Loans

You can apply for an SBA disaster loan online, in-person at a disaster center or by mail. If you apply for the EBL Pilot Program, you can do it directly with an SBA Express lender. After you apply, the administration will review your credit profile. You must have an acceptable credit history to be eligible for a disaster loan.

After reviewing your credit, the SBA would send an inspector to your property to estimate the total loss to your home or business location. Once the inspection is complete, a loan officer will determine your eligibility for a loan by reviewing any insurance payments or other financial assistance. The SBA encourages you to apply for a loan even if you haven’t received compensation from your insurer yet; you could get loan approval before your insurance claim resolves.

The SBA tries to process applications within two to four weeks. The EBL Pilot Program is designed to provide faster access to funds while you wait for long-term loans. If you’re approved, the administration will send you loan closing documents to sign. The SBA could adjust your loan amount after you close based on unexpected costs that arise or insurance money that comes in. For business loans, the SBA will make an initial disbursement of $25,000 within five days of approving the application.

Filing deadlines: Typically, you would have 60 days after the disaster declaration date to apply for a loan for physical damages, and nine months to apply for financing for economic injury. The SBA will announce the filing deadline on their website and in documentation they provide.

Additional Required Documents

The information you provide to the SBA depends on what type of loan you’re seeking.

For home loans, applicants will need to obtain a Registration ID Number from the Federal Emergency Management Agency (FEMA). Applicants will need to provide the following information to the SBA:

  • Personal and contact information
  • Employment and salary information
  • Address and insurance information for damaged property
  • Current assets, including cash, retirement savings and vehicles
  • Current debts, including mortgages, credit card debt or installment loans
  • Other income, including child support, alimony and tuition
  • Information about delinquencies, judgments, lawsuits or criminal records

Business owners will need to provide the following information during the application process:

  • Business address
  • Employer identification number
  • Organization type (corporation, partnership, etc.)
  • Business insurance information (if your policy covers the disaster)
  • Personal and contact information of business owners
  • Personal financial statements
  • Schedule of liabilities and debts
  • Most recent business tax returns

The SBA may require additional information from business owners, such as current profit and loss statements, monthly sales figures or balance sheets. If the SBA requests these documents, you must provide them to the agency within seven days.

Making an SBA Disaster Loan Payment

The SBA accepts disaster loan payments online, on the phone or through the mail.

  • Online: Visit Pay.gov to make a payment.
  • Phone: Call the SBA Customer Service Center for free at 1-800-659-2955.
  • Mail: Send a check or money order made out to the U.S. Small Business Administration. Make sure it includes your loan number and any applicable payment coupons. Mail your payment to:
SBA P.O. Box 3918 Portland, OR 97208-3918

Keep your receipts and spending records for at least three years, in case the SBA asks how you used the funds. If the SBA determines you have misused your SBA disaster loan, you could face steep penalties, like immediate repayment of 150% of your loan amount.

FAQs

How do SBA disaster loans work? The SBA issues loans to homeowners and business owners in areas where a federally-declared disaster, such as a hurricane, fire or flood, has occurred. After the disaster, you can apply online or in person for a loan to either cover physical property damages or economic injury that your business has sustained.

What are the requirements for an SBA disaster loan? Requirements vary for each type of SBA disaster loan that’s available. Generally, your home or business must have suffered damage from a declared disaster. You must have acceptable credit history, and you must allow the SBA to review your personal or business tax returns.

Will SBA disaster loans be forgiven? No, the SBA does not offer a forgiveness program for disaster loans. These loans must be repaid over 30 years with interest rates up to 8%, depending on your circumstances. The SBA’s Paycheck Protection Program loans for COVID-19 relief would be eligible for forgiveness.

Melissa is a senior writer for LendingTree, MagnifyMoney and ValuePenguin focused on small business. She previously covered business news for Bizwomen.com and the Dallas Business Journal. Melissa graduated from the University of North Texas with a bachelor's degree in journalism.