The Ultimate Guide to SBA Disaster Loans

Check our guide to EIDLs for up-to-date information on SBA coronavirus disaster loans.

When disaster strikes, it can be difficult to know where to turn for financial assistance. In the frenzy of recovery, you need a reliable source of business capital to help you regain your economic footing.

SBA disaster loans are low-interest small business loans available to business owners, renters, and homeowners who need access to affordable funding after a declared disaster. SBA disaster loans are also available to business owners who have an essential employee who is a military reservist called for active duty.

In this guide, we’ll dive into the details about SBA disaster loans, including the different types, who qualifies, and how you can apply for one in your business’s time of need.

SBA Disaster Loans: The Ultimate Guide

• Overview
• Types of SBA Disaster Loans
• Eligibility Requirements
• How to Apply for an SBA Disaster Loan
• Frequently Asked Questions

On the whole, SBA loans are known as some of the best business loan products on the market, with long terms and low-interest rates. When it comes to SBA disaster loans, however, these products serve a very specific purpose: According to the SBA website, “the SBA provides low-interest, long-term loans for physical and economic damage caused by a declared disaster.”

SBA Disaster Loans Overview

With this overview in mind, let’s explore each of the different types of SBA disaster loans and what purpose they serve. Overall, it’s important to note that the SBA disaster loan program (with the exception of the Express Bridge program) is the only SBA loan program in which the SBA actually lends funds directly to business owners. As such, the SBA determines the interest rates, terms, amounts, and eligibility requirements for these loans.

Although SBA loans are typically exclusive to businesses, home and personal property disaster loans are designed to offer assistance to homeowners, renters, and personal property owners. With this type of SBA disaster loan, you can receive financing to repair or replace your primary residence and other personal property that’s damaged or destroyed in a disaster.

If you’re eligible for a home and personal property disaster loan to repair or replace your primary residence, you can apply for a loan of up to $200,000. On the other hand, however, if you’re looking for a loan to replace or repair personal property—like clothing, furniture, cars, and appliances—you’ll only be able to apply for amounts up to $40,000. Additionally, in some cases, the SBA can refinance all or part of a previous mortgage if you’re unable to access credit elsewhere and have suffered substantial damage not covered by insurance.

Along these lines, in terms of interest rates, if the SBA finds that you are able to obtain credit elsewhere, then the maximum interest rate on these loans will be 8%. If the SBA determines that you cannot access credit elsewhere, the maximum interest rate will be 4%. In either case, the repayment term goes up to 30 years.

Moreover, home loans for more than $25,000 require collateral to the extent possible. Otherwise, the SBA will ask you for collateral, but will not decline your application based on a lack of collateral. This type of SBA disaster loan does not require a personal guarantee, as this isn’t a business loan, and joint applicants are allowed. It’s also important to note that a first or second mortgage on your damaged real estate is commonly used as collateral for one of these loans.

Unlike home and personal property disaster loans, a business physical disaster loan (per the name) is designed for businesses that have had their property damaged in a declared disaster. These SBA disaster loans are available for businesses of any size and most private nonprofit organizations.

With a business physical disaster loan, you’ll be able to replace or repair all of the following types of business property:

• Real property
• Machinery
• Equipment
• Fixtures
• Inventory
• Leasehold improvements

Through this SBA disaster loan program, you can apply for a business loan of up to $2 million to replace damaged property or to restore property to its pre-disaster condition. It’s important to note that these loans cannot be used to upgrade or expand your business, except as required by building codes.

As with home and personal property disaster loans, these loans have a maximum interest rate of 8% if you’re eligible for credit elsewhere (up to 4% otherwise). Additionally, repayment terms go up to 30 years. Furthermore, like the home and personal property loans, these SBA disaster loans allow for joint applicants and require collateral for loans over $25,000. Business physical disaster loans, however, do require a personal guarantee.

Whereas business physical disaster loans are designed to provide capital to repair property as the result of a disaster, economic injury disaster loans (EIDL) are designed to provide financial assistance to businesses who have experienced a severe slowdown in business as a result of a declared disaster.

Although economic injury to a business might seem much more subjective than physical damage, the SBA defines substantial economic injury as “the business is unable to meet its obligations and pay its ordinary and necessary operating expenses.” As an example, if you had to close your business and evacuate due to a hurricane and now are unable to cover your operating costs, you may be eligible for an EIDL.

This being said, any small business, small business agricultural cooperative, or private nonprofit organization that meets this requirement is eligible to apply for an EIDL. These SBA disaster loans are available in amounts up to $2 million—and the amount awarded is based on your business’s actual economic injury and financial needs, regardless of whether you’ve suffered any property damage.

Unlike the other types of SBA disaster loans we’ve discussed so far, however, economic injury disaster loans are only available to businesses who are unable to obtain credit elsewhere. With this in mind, the maximum interest rate on these business loans is 4%, and the maximum repayment term is 30 years. If your business experienced both economic and physical damage, you can qualify for a business physical and economic injury disaster loan.

Once again, like business physical disaster loans, an EIDL requires a personal guarantee, as well as collateral for loans over $25,000. Joint applicants are also allowed for these loans.

Click here, if you are looking for an economic injury disaster loan due to the ongoing coronavirus pandemic.

Military reservist economic injury disaster loans (MREIDL) are inherently different from the other types of SBA disaster loans we’ve discussed thus far. Unlike the three loans above, an MREIDL offers financial assistance to business owners who are unable to meet their ordinary and necessary operating expenses because an essential employee has been called to active duty as a military reservist.

This being said, however, the purpose of this type of SBA disaster loan is not to cover lost income or lost profits and the funds cannot be used in place of regular commercial debt, to refinance long-term debt, or expand your business. Similarly, if your business can find funding elsewhere, you’re not eligible for a military reservist economic injury loan.

With this in mind, an MREIDL is available in amounts up to $2 million, but the SBA decides the specific amount based on their calculations of your economic injury. Additionally, like the general economic injury loans, these SBA disaster loans have a maximum interest rate of 4% and terms up to 30 years. Collateral is required for any MREIDL in an amount higher than $50,000. Plus, like the home and personal property disaster loans, the SBA will not decline a loan for lack of collateral, but will ask that you pledge collateral (such as real estate) that’s available.

Finally, it’s worth noting that military reservist economic injury disaster loans have a specific filling period—the period starts on the date the essential employee is notified that they’re being called up to active duty and ends one year after the employee is discharged or released from active duty.

Finally, although the Express Bridge Loan Pilot Program isn’t technically part of the official SBA disaster loan program, these loans can still be considered disaster or emergency business loans.

With this in mind, it’s first and foremost important to note that because Express Bridge loans are not part of the official SBA disaster loan program, they are not funded by the SBA. Instead, like typical SBA or SBA Express loans, these products are funded by lending partners—specifically, those who were already participating in the SBA Express program at the time of the declared disaster.

This being said, Express Bridge loans offer interim financing to businesses that are located in declared disaster areas. These loans are designed to be used for disaster-related purposes while you apply for longer-term financing.

Express Bridge loans are available in amounts up to $25,000 (the SBA guarantees 50% of the loan), with terms up to seven years. As these loans are provided by SBA lending partners, the interest rate varies based on the individual lender—however, the SBA requires that the interest rate cannot exceed the prime rate + 6.75%. Additionally, the SBA requires an upfront guarantee fee for these loans—but restricts other fees to application fees, late payment fees, and liquidation costs. Like general SBA Express loans, lenders are not required to take collateral for these loans.

Once again, the Express Bridge Loans program is a pilot program and is currently in effect until September 30, 2020.

As we’ve seen in our discussion thus far, the majority of the available SBA disaster loans require that you or your business has experienced some type of damage due to a declared disaster. Generally, this is one of the first requirements to determine whether you’re eligible for an SBA disaster loan.

The SBA lists currently declared disasters on their website—which can include events such as tornadoes, earthquakes, virus outbreaks, and other natural disasters. Of course, as we mentioned above, to be eligible for an MREIL, you will not need to have suffered damage from a declared disaster, but instead, as a result of an essential employee being called to active duty as a military reservist.

This being said then, your eligibility for the other types of SBA disaster loans largely depends on the specific loan, as shown in the table below:

In addition to meeting these eligibility requirements for the respective SBA disaster loan program you’re applying to, you’ll also need to ensure you follow the application instructions and submit your application within any designated timeline.

Now that we’ve reviewed the general eligibility requirements for SBA disaster loans, let’s break down the steps that are required to actually apply for one of these loans. On the whole, just like your eligibility requirements depend on the individual loan that you’re looking to apply for, some of the application processes also depend on the specific loan. This being said, however, each of the loans that are part of the official SBA disaster loan program—that is all of the loans we’ve discussed with the exception of the Express Bridge loan—follow a very similar process.

With this in mind, there are three ways you can apply for an SBA disaster loan:

• Online: According to the SBA website, using the online application is the fastest method to receive a decision about your loan eligibility.
• By mail: You can complete a paper application and submit it by mail.
• In-person: You can apply for one of these loans in-person at any Disaster Recovery Center and receive one-on-one assistance from an SBA representative.

To submit your application, you’ll be required to provide a handful of information and documents about your business and yourself (as well as any other co-applicants).

Once you’ve gathered all of the relevant documentation and completed the actual SBA loan application, you’ll submit it in one of the three methods we mentioned above. After you’ve submitted your application, you’ll move to the second part of the process—in which the SBA verifies the damage to your business and assesses your overall eligibility for the loan.

This being said, the SBA will first and foremost review your credit profile, and then they’ll estimate your total damages send a representative to inspect what you’ve reported. Next, the loan officer determines your eligibility by reviewing insurance payments or other recoveries already made (although you can apply without having received any insurance money).

At this point, the loan officer will work with you to gather any additional documents that are required to make a loan determination. Generally, the SBA tries to make a loan decision on applications within two to three weeks. After this underwriting process is complete, the loan officer will contact you to discuss the next steps (you’ll also be notified in writing.)

If you’re approved for an SBA disaster loan, the SBA will prepare and send closing documents for you to review and sign. Once you’ve signed the agreement, an initial disbursement will be made in five days. This being said, however, the SBA disaster loan disbursement process will vary slightly depending on the specific loan you’ve received. With physical damage loans, you’ll receive $25,000 automatically within those five days. With economic injury loans, on the other hand, the amount you receive can be greater if you’re receiving coverage for physical damage as well. In this case, you can receive the maximum $25,000 for physical damage in addition to the $25,000 for economic injury within five days.

After you’ve received your SBA disaster loan disbursement, a loan officer will be assigned to work with you to help you meet the conditions of the loan. This representative will also schedule subsequent disbursements until you receive the full amount of your loan.

With all of this in mind, it’s important to note (as we did earlier) that this process will not be the same for the SBA Express Bridge loans. Like general SBA Express loans, disaster loans from the Bridge program are provided by SBA lending partners and do not directly come from the SBA. Therefore, the process will vary largely based on the lender you choose to work with, but overall, it will mimic the process of the SBA Express loan program.

Learn more about how to get this type of SBA loan here.

At the end of the day, although applying for an SBA disaster loan may seem intimidating and time-consuming, the final result is well worth the effort. When it comes to emergency funding, an SBA disaster loan will likely offer the most affordable financing with the most desirable rates and terms.

On the other hand, however, if you are unable to apply for this type of business financing, or apply and are unable to qualify, you might consider alternative lenders—who typically have more lenient qualifications and faster funding times.

Ultimately, rebuilding your business after a disaster can be difficult, but accessing the right financing can certainly help you through the process.