What is an SBA disaster loan?
The Small Business Administration (SBA), a government agency that supports small businesses, offers various types of loans to assist entrepreneurs in starting, expanding and maintaining their businesses.
An SBA disaster loan can provide financial assistance to businesses facing economic hardships due to a disaster. This specific loan type can help cover expenses such as repair costs, working capital and temporary relocation, enabling businesses to recover and resume operations during challenging times.
Here’s more on SBA disaster loans, requirements and how to apply.
Key takeaways
The SBA disaster loan offerings include physical damage, mitigation assistance, economic injury disaster loan (EIDL) and military reservist loan.
These loans provide up to $2 million in financial assistance to recover from and prepare for declared disasters.
Collateral may be required for loans over a certain amount.
What is an SBA disaster loan?
An SBA disaster loan is a financial assistance program designed to help businesses, homeowners and renters recover from declared disasters, such as hurricanes, floods or wildfires.
Unlike other SBA loans or conventional bank loans, these low-interest loans can be used for expenses not fully covered by insurance or other sources, including repair or replacement of damaged property, inventory and equipment and covering working capital needs. Ultimately, they help entrepreneurs rebuild operations and recover from the disaster.
Who can use an SBA disaster loan?
Businesses operating in officially declared disaster zones can apply for an SBA disaster loan. Private nonprofit organizations, homeowners and renters impacted by declared disasters can also apply.
Bankrate insight
According to the 2023 Report on Employer Firms, 23 percent of employer firms received financial assistance through EIDLs in 2022.
Types of SBA disaster loans
The SBA disaster loan offerings include physical damage, mitigation assistance, economic injury disaster loan (EIDL) and military reservist loan. Each loan assists individuals and businesses affected by various disasters, including hurricanes, floods, wildfires, civil unrest, droughts, tornados and other declared emergencies.
Loan type | Loan amount | Term length | Interest rate | Collateral |
|---|---|---|---|---|
Physical damage | $40,000 to $ 2 million | 30 years | 4% to 8% | Only for business loans over $25,000 and homeowners and renters for loans above $14,000 with an agency declaration |
Mitigation assistance | $2 million | 30 years | 4% | No |
Economic injury disaster loans (EIDL) | $2 million | 30 years | 4% | Only for loans over $25,000 |
Military reservist loan | $2 million | 30 years | 4% | Only for loans over $50,000 |
Physical damage
Physical damage loans are designed to provide financial assistance for businesses, homeowners and renters who have suffered physical damage due to a declared disaster. These loans can be used for repairing or replacing damaged property not fully covered by insurance, including buildings, equipment and inventory.
Maximum loan amounts vary depending on the applicant, with renters receiving up to $40,000, homeowners up to $200,000 and businesses up to $2 million.
Mitigation assistance
Mitigation assistance provides financial support of up to $2 million to businesses and homeowners to prepare and protect against future disasters. This assistance helps fund projects focusing on wind, flood, wildfire, earthquake and hail mitigation. Projects can include infrastructure improvements, retrofitting and upgrading building materials. Ultimately, these measures can help reduce the cost of damage caused by declared natural and other disasters.
Economic injury disaster loans (EIDL)
EIDLs provide up to $2 million in working capital to cover necessary operating expenses and financial obligations that could not be met due to the disaster’s impact. This allows businesses to bridge the gap during difficult times, allowing them to recover from the economic setbacks caused by the disaster.
Bankrate insight
Although the SBA stopped accepting new applications for COVID-19 EIDLs as of September 8, 2021, they were a vital financial resource for businesses impacted by the COVID-19 pandemic, used for working capital and to cover operating expenses, payroll and other essential business costs.
Military reservist loan
The military reservist loan is designed to assist small businesses experiencing financial difficulties when an essential employee is called to active duty in the military reserves. These loans provide up to $2 million in working capital to cover operating expenses.
Requirements for an SBA disaster loan
All business loans have requirements, including those offered by the SBA. To qualify for an SBA disaster loan, businesses, private nonprofit organizations, homeowners and renters must:
Be in officially declared disaster areas.
Have suffered financial impact or substantial economic injury from the declared disaster.
Provide proof of creditworthiness and ability to repay the loan.
Comply with SBA size standards for businesses.
Provide collateral if borrowing a larger amount that requires it.
How to get a disaster loan
Obtaining a disaster loan involves three steps. Business owners must complete an application, have their property inspected and review and sign the loan documents.
1. Application
Before applying for an SBA disaster loan, you’ll need to confirm that the SBA or the President has declared a disaster in your area. Once you confirm the declaration status and determine which loan type you qualify for, your application for a disaster loan can be completed online, in-person or by mail within the filing period, based on the loan type.
When applying for a disaster loan, the following information must be provided:
Applicants(s) contact information and Social Security number(s)
FEMA registration number
Insurance information
Employer Identification Number (EIN), if applicable
Financial information to show income, monthly expenses and account balances
Deed or lease information
2. Inspection
Your application is reviewed, and an inspection is scheduled to evaluate the total property loss. A loan officer will then review other details, including insurance, and suggest a loan amount, which typically takes no more than three weeks following receipt of the application.
The SBA will provide updates on the status of your loan application. To review your status, log in to your SBA account or keep an eye out for updates via email.
3. Closing and funding
Applicants review and sign the loan documents, and within five business days, funds will be disbursed. If additional funds, up to 20 percent, are needed, the assigned case manager will schedule the disbursement.
The bottom line
It is not uncommon for small businesses to require financing to cover expenses. The SBA’s goal is to help small businesses succeed, so disaster loans are invaluable resources for individuals and businesses alike in times of crisis. With their low-interest rates and flexible repayment terms, these loans can provide much-needed financial support for recovery and rebuilding efforts.
