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What You Need to Know to Get an SBA Disaster Loan

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SBA disaster loans can help business owners, homeowners and renters who qualify recover from unforeseen destruction.

If your insurance and Federal Emergency Management Agency funding doesn’t provide enough, the disaster loan program from the U.S. Small Business Administration could fill the gaps. Continue reading to understand the ins and outs of SBA disaster assistance.

Who can use an SBA disaster loan and how?

Low-interest SBA disaster loans are available to business owners, homeowners and renters in regions where a federally declared disaster has occurred. SBA disaster loans can be used for many purposes, including repairing real estate or personal property, recovering from economic injury or purchasing machinery, equipment or inventory.

The SBA offers four types of long-term disaster loans:

Long-Term Disaster Loan Amount Interest Rates
Business physical disaster loans Up to $2,000,000 Up to 8.00%
Economic injury disaster loans Up to $2,000,000 Up to 4.00%
Military reservists economic injury disaster loans Up to $2,000,000, with exceptions 4.00%
Home and personal property loans Up to $200,000 to repair a primary residence; up to $40,000 to replace or repair personal property Up to 8.00%

 

  • Business physical disaster loans: Businesses of any size and most private nonprofit organizations could qualify for up to $2,000,000. Business physical disaster loans have repayment terms of up to 360 months and a maximum interest rate of 8.00%. If the SBA determines you are unable to obtain disaster funding elsewhere, it would cap your interest rate at 4%. Additionally, you could increase your loan amount by 20% to protect your business against a similar disaster in the future.
  • Economic injury disaster loans (EIDLs): Small businesses, small agricultural cooperatives and most private nonprofit organizations could qualify for up to $2,000,000 if they cannot obtain funding elsewhere. An EIDL is designed to cover operating expenses and financial obligations that would’ve been met had a disaster not happened, with terms up to 360 months and a maximum 4.00% interest rate. Some businesses may be able to qualify for both an EIDL and a physical disaster loan up to a combined $2,000,000. For losses related to the coronavirus pandemic, you may be eligible for an EIDL designed specifically for the crisis.
  • Military reservists economic injury disaster loans (MREIDLs): If an essential employee is called up to active duty, the business could qualify for an MREIDL to pay financial obligations until the employee returns. The maximum MREIDL amount is $2,000,000, with terms up to 360 months and a 4.00% interest rate. However, the SBA could allow more than the $2,000,000 maximum for large employers. MREIDLs larger than $50,000 require collateral, such as real estate, to secure the loan.
  • Home and personal property loans: Homeowners can apply for loans up to $200,000 to repair their primary residence. Loans up to $40,000 are also available to homeowners — and renters — to replace or repair property such as clothing, furniture, cars or appliances. Loans come with terms up to 360 months and a maximum 8.00% interest rate. However, your interest rate may be capped at 4% if you cannot qualify for funding elsewhere. Home loans exceeding $25,000 may need to be secured with collateral, although a lack of collateral wouldn’t necessarily mean you’d be declined.

Short-term solution: Small businesses in disaster areas could secure interim financing for disaster-related needs while waiting for long-term funding. The Express Bridge maximum loan amount is $25,000, with a maximum term of 84 months. The maximum rate would be based on the prime rate (which is 4.75% as of Jan. 2, 2020) plus 6.5%. The Express Bridge loan is part of a pilot program from the SBA that expires in September 2020.

It’s important to note the SBA is not a lender. Instead, it guarantees loans issued through partner lenders. The guarantee reduces risk for the lender, giving small business owners a better chance of qualifying for financing.

How to get an SBA disaster loan

Businesses, private nonprofit organizations, homeowners and renters can apply online for an SBA disaster loan. You could also download and mail the necessary application forms. Express Bridge loan applicants can apply directly with an SBA Express lender in their area.

To be eligible for assistance, you must be located in a federally declared disaster area; Damage from fires, hurricanes, tornadoes and severe storms are among the incidents that could qualify as a disaster. Your first step for financial assistance should be contacting FEMA, whose funding comes as grants that don’t need to be repaid. SBA disaster loans would help you make ends meet if FEMA funding is not enough.

SBA disaster loan requirements

You need acceptable credit history and proof that you could repay a loan to meet the SBA’s eligibility requirements for disaster loans. You may need to provide collateral for a business physical loss loan or EIDL exceeding $25,000. You’d have to pledge whatever assets you have available.

There are certain restrictions on disaster loan eligibility, including:

  • Insured losses: Uninsured or uncompensated disaster losses are the only losses eligible. Any insured losses would not be eligible for disaster assistance.
  • Ineligible property: Secondary homes, boats, airplanes and vehicles are not eligible, unless they are used in business. Other property, such as antiques and collections, would only be eligible to the extent of the functional value. Amounts for landscaping and swimming pools would be limited.
  • Noncompliance: If you previously received SBA funding but did not comply with requirements, such as maintaining flood insurance, you may not be eligible for disaster assistance.

The SBA may require you to purchase and maintain flood insurance if you’re in a flood hazard area. Coverage must be the lesser of:

  • The total of the disaster loan
  • The insurable value of the property
  • The maximum amount available

Homeowners and renters need to fill out an SBA disaster home loan application and the IRS Form 4506-T Request for Transcript of Tax Return.

The SBA disaster business loan application calls for more documentation. Besides a completed application form, each business owner would need to complete IRS Form 4506-T. The most recent federal income tax returns would also be required for the business itself, if applicable.

Each owner may need to submit a personal financial statement, and the SBA would ask for a list of the business’s schedule of liabilities. Further financial information — including balance sheets, profit and loss statements and current sales figures — may be required as well.

Why would you get denied for an SBA disaster loan?

The majority of applicants denied for SBA disaster loans — only about 50% are approved — fall short of the credit requirement. You will typically need a credit score of at least 650 to meet the SBA’s minimum requirements, so if your personal credit score is below the SBA’s limit, you would be automatically denied for disaster assistance.

Denied homeowners would receive immediate FEMA referrals to receive a grant, while businesses would be referred to resource partners to provide further assistance.

Next steps after applying

After receiving your application, the SBA would send an inspector to your property to assess the damage. The inspector would estimate the loss to your business or home, and a loan officer would determine your eligibility for financing. The loan officer would review any insurance payments or other financial assistance you received.

The SBA aims to process disaster loan applications within four weeks, though an Express Bridge loan would likely have a faster turnaround time. Once approved, you would receive loan closing documents to sign and return to the SBA. Your loan could be adjusted after closing if there are any circumstantial changes. You should apply even if you haven’t yet received your insurance settlement, as the SBA could adjust your loan amount at a later time.

Once you’ve signed and submitted your loan closing documents, you’d receive an initial SBA disaster loan disbursement of $25,000 within five days. You would get regular disbursements until the full loan amount is funded. A case manager would be assigned to help you comply with the conditions of your loan.

You can visit the SBA website to check the status of your SBA disaster loan.

How to make SBA disaster loan payments

Borrowers can make SBA disaster loan payments online, by mail or by phone.

Make payments to the SBA
Mail SBA
P.O. Box 3918
Portland, OR 97208-3918
Phone 1-800-659-2955
Online Make recurring or one-time payments at Pay.gov, the online portal for paying federal government agencies

 

Your SBA disaster loan will be designated for a specific purpose, such as repairing property damage. As you begin to spend your funds, make sure you save all receipts and maintain your spending records for at least three years. If you misuse an SBA disaster loan, you would likely face penalties, which could include an immediate payment that’s one and a half times your original loan amount.

What happens if you default on an SBA disaster loan?

Upon default, the lender could foreclose on the collateral, such as your home or business real estate, that you put up to secure the loan. However, SBA guidelines suggest that an alternative to foreclosure should be worked out when possible.

The SBA may agree to suspend your loan payments or extend the loan maturity if you can’t make your payments for reasons out of your control. You may also be able to get a deferment of past or upcoming payments if you’re facing extensive hardship.

There is no SBA disaster loan forgiveness program. Before borrowing an SBA disaster loan to cover expenses and damage after a destructive event, be sure you can repay your debt in full. If so, an SBA disaster loan could provide the help you need to get your business back on track.

 

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