SBA Disaster Loan Programs for Your Small Business

The Small Business Administration may be able to help

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If your business has been affected by a pandemic, natural disaster, or other hardship, you may be able to qualify for disaster relief through funding from the U.S. Small Business Administration (SBA). The SBA has several programs to help your small business recover.

Disaster loans are given for physical damage or economic injury in areas of the U.S. affected by declared disasters and the small business must be located in a designated area.

The federal government and SBA have created several specific COVID-19 small business relief programs to help employers during the coronavirus pandemic, including paycheck protection, disaster loans, tax credits, and more. Effective July 11, 2020, the Economic Injury Disaster Loan (EIDL) loans will continue to be available (apply here), but the loan advance program has ended. 

How Does an SBA Disaster Loan Work? 

In general, SBA disaster recovery loans are available for businesses and individuals that have had losses from a U.S. disaster.

The SBA doesn't give direct loans to small businesses. The agency works with designated lenders to help qualify businesses and guarantee loans.

SBA disaster loans come in two forms: 

  1. Physical disaster loans: These are used to replace or repair physical damage. Physical property includes real property (land and buildings), machinery and equipment, fixtures, inventory, and leasehold improvements.  
  2. Loans for economic recovery (including the coronavirus epidemic): These are designed to help small businesses meet ordinary and necessary financial obligations that can't be met as a direct result of the disaster.

Economic recovery loans usually take the form of working capital loans for operating expenses to help small businesses survive during the recovery process.

What Do I Need to Do Before Applying? 

First, you need to determine if you are in a declared disaster area. The federal government, the SBA, and the Secretary of Agriculture can declare an area as a designated disaster area. Check the list of current designated disaster areas to see if your area is included.

Next, you may need to submit a claim to your insurance company and get started with the process of determining what they will pay you.

Most business income or business interruption policies don't cover epidemics or pandemics.

The SBA will only pay for damage that is not covered by insurance, but you can begin the loan process before you know the amount repaid by insurance. You may be able to apply for the SBA loan and agree to use insurance proceeds to repay or reduce it.

How Do I Submit a Disaster Loan Application? 

There are three ways that you can submit an application:

  1. Use the online disaster loan process
  2. Submit a paper loan application
  3. Apply in person at an SBA booth at a local disaster relief center (often set up immediately after most disasters) or at a local SBA office

If you're seeking financial assistance for your business because of the impacts of COVID-19, be sure to apply via the specific COVID-19 Economic Injury Disaster Loan Application on the SBA website.

What Information Do I Need for My Application? 

The disaster loan paperwork is different for sole proprietors than what other types of businesses may need. Forms needed for your small business loan application include: 

  • A business loan application (SBA Form 5)
  • An IRS Form 4506-T for each applicant (the business) and each of its owners (the requirements for who must submit this form differ depending on the type of business and the number of owners)

Additional documents needed for your company and the applicants include: 

  • A complete copy of the most recent federal income tax returns for the business, including all schedules 
  • A personal financial statement (SBA Form 413) for each owner of the business
  • A schedule of liabilities (you might use SBA Form 2202) with current status and balance
  • A current year-to-date profit and loss statement for the business
  • Current sales figures on SBA Form 1368

You may also be required to provide tax returns for all owners of the business.

You may be required to have collateral (some money or other assets) to be accepted for this loan. The SBA won't decline a loan for lack of collateral, but it requires you to pledge what is available.

What Is the Process for Disaster Loan Approval? 

When you apply for an SBA disaster loan, the SBA first reviews your credit to make sure you are a good candidate for a loan.

Next, it will verify the physical damage and/or economic damage to your business and make an estimate.

The loan process then takes over, including working with a designated lender, gathering information, asking for documents, and requesting insurance coverage information.

At the end of the process, the loan documents are prepared and signed.

How Can I Increase My Chances of Getting a Disaster Recovery Loan?

There are a few things you may be able to do to speed up the loan process and improve your chances of getting an SBA disaster loan.

  1. Check your credit rating: Make sure it meets the requirements for eligibility. If you have poor credit you may need to repair your credit before applying. If you have a business credit rating, that's great. If not, you will need to use your personal credit rating. 
  2. Prepare information: Gather info about the losses to your business. For economic losses, you'll need to be able to show lost revenue. For physical losses, you'll need to estimate the value of your property losses.
  3. Print out all forms: Before you submit anything to the SBA, print out all the forms that need to be submitted and go through them carefully answering all the questions. Don't make the loan officer have to come back and ask you more questions or request more information. 
  4. Have all documents ready: Make sure you have all of your documents ready to go, including the required tax returns and company documents. Also, ensure they are complete and accurate.

What If My Loan Application Is Denied? 

Your application for an SBA disaster loan might be denied if: 

  • Your credit history is not acceptable
  • You don't show an ability to repay the loan 

If you apply for an SBA disaster loan and it is denied, you can apply for a reconsideration. You must submit your application to the SBA's Disaster Assistance Processing and Disbursement Center (PDC) within six months after the denial. If your application is denied again, there is an additional process available. 

Where Else Can I Find Disaster Assistance? 

For physical and economic losses from natural disasters (not available for those due to the coronavirus), you can contact FEMA, which examines the damage to your property and provides other forms of assistance for homeowners, renters, and businesses affected by disasters.

FEMA offers grants that don't have to be repaid. Go to DisasterAssistance.gov to begin the process of applying for assistance.

How a Disaster Loan Fits Into Your Recovery Plan and Insurance Coverage

SBA disaster loans don't replace a solid disaster recovery plan that you prepare for your business before a disaster happens. These loans also don't replace your risk management/insurance coverage either. Your business insurance coverage may include flood insurance and business interruption insurance (but not for epidemics). 

A recovery plan that's complete and adequate insurance are the first lines of defense against disasters for your business. If the damage is greater than what these cover, an SBA disaster assistance loan might help you more quickly recover and get on with your business. 

For more information, visit the SBA's disaster assistance website, call the SBA at 1-800-659-2955 or 1-800-877-8339, or you can email your questions to disastercustomerservice@sba.gov.  

Article Sources

  1. Small Business Administration. "SBA Provided $20 Billion to Small Businesses and Non-Profits Through the Economic Injury Disaster Loan Advance Program." Accessed July 12, 2020.

  2. U.S. Small Business Administration. "SBA Disaster Loan Program Frequently Asked Questions." Accessed July 12, 2020.

  3. FEMA. "There Are Plenty of Reasons to Apply for an SBA Disaster Loan." Accessed July 12, 2020.

  4. U.S. Small Business Administration. "Disaster Loan Application Paper Forms." Accessed July 12, 2020.