What Is An SBA Disaster Loan And How Do You Get One?

SBA disaster loans offer critical financial support to small businesses recovering from economic or physical damage after a declared disaster. These low-interest loans come with long repayment terms and help cover expenses that insurance doesn’t, like mitigation upgrades and operating costs. Disaster loans often fund faster than other SBA loan programs, helping your business get back up and running sooner.

If you’ve been dealing with hardship from a disaster, it’s helpful to know how SBA disaster loan assistance works, including the types of disaster relief available, who qualifies and how to apply.

What is an SBA disaster loan?

A SBA disaster loan is what the U.S. Small Business Administration offers to those impacted by a declared disaster, such as a flood, hurricane or wildfire, when insurance won’t cover or fully pay for the damage.

These loans are available to small businesses of all sizes, nonprofits, homeowners and renters to repair or replace damaged property. They can also provide economic relief if your business loses income due to a disaster or an essential employee is called to active military duty.

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.

Types of SBA disaster loans

The SBA disaster loan offerings include physical damage, mitigation assistance, economic injury disaster loans (EIDL) and military reservist loans. Each loan assists individuals and businesses affected by various disasters, including hurricanes, floods, wildfires, civil unrest, droughts, tornados and other declared emergencies.

Physical damage loans

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. Renters and homeowners can receive up to $100,000 to repair or replace personal property and homeowners can get up to $500,000 for repairs or to replace their primary residence. Businesses and nonprofits can receive up to $2 million to repair or replace:

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

Mitigation assistance

Mitigation assistance provides financial support of up to $2 million to businesses and homeowners with up to 20 percent additional disaster loan funds for building upgrades to prepare for 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 and regular operating expenses and financial obligations that businesses couldn’t meet due to the disaster’s impact. This allows small businesses, small agriculture cooperatives and most private nonprofit organizations to bridge the gap during difficult times, helping them recover from the economic setbacks.

Only small businesses who can’t qualify for funding elsewhere are eligible to apply for EIDL disaster assistance.

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 at a Discovery Recovery Center or by mail within the filing period — 60 days from the date following the declaration for physical disaster loans and nine months for EIDLs.

When applying for a disaster loan, the following information must be provided:

• Applicant contact information and Social Security number
• FEMA registration number
• Insurance information
• Employer Identification Number (EIN), if applicable
• Financial information to show income, monthly expenses and account balances
• Real estate deed or lease information
• IRS Form 4506-C to give the IRS permission to provide tax return information to the SBA
• SBA Form 413
• A personal guarantee from owners with 20 percent or higher stake in the business

2. Inspection

The SBA will review your application and then schedule an SBA disaster loan inspection to evaluate the total property loss. A loan officer will then review other details like insurance, creditworthiness and collateral and suggest a loan amount. This process typically takes no more than three weeks following receipt of the application.

SBA disaster loan processing times vary by the annual application volume, taking anywhere from two to four weeks or more for higher volume application years.

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

If your loan is approved, the SBA will send you closing documents to review and sign. Make sure to read the contract thoroughly and ask your case manager any questions before signing.

You should receive your initial fund disbursement within five business days. If additional funds are needed, up to 20 percent of the original amount, the assigned case manager will schedule the disbursement.

SBA disaster loan pros and cons

As with any type of loan, you should weigh the pros and cons of a SBA disaster loan to determine if its right for you.

Pros

• Affordable interest rates
• Generous repayment terms
• Large loan amounts available
• Flexible fund usage

Cons

• Eligibility depends on location and alternative funding
• Difficult to qualify for
• Higher interest rates if you qualify for funding elsewhere
• Proceeds from other sources lessen loan amount

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.

Frequently asked questions