SBA Disaster Loans: Everything You Need to Know

This article is part of a larger series on Business Financing.

• Benefits
• Prohibited Uses
• Types
• Rates, Terms & Requirements
• Typical Timeline
• Who Should Get It
• How to Apply
• FAQs
• Bottom Line

SBA disaster loans are designed to provide financial assistance to businesses that have been impacted by a qualifying declared natural disaster. This can include hurricanes, tornadoes, floods, and wildfires. The SBA has several disaster loan programs, and funds can generally be used for repairs, payment of business debts, daily expenses, and other costs that must be paid to help the company continue operations.

SBA disaster loans can come with rates below 4% and allow up to 30 years to repay the loan. To see if you qualify, visit SBA’s Disaster Declaration website.

SBA Disaster Loan Benefits

Funds from SBA disaster loans are designed to help a business stay afloat and are not intended to cause any financial stress on a company. Because of this, you’ll find that SBA disaster loans carry many benefits, such as the following:

• Low interest rates: Rates generally range from 2.75% to 4%. By comparison, banks and other lenders typically lend money starting at around 8% depending on the type of loan being offered.
• Easy qualification requirements: SBA disaster loans can be issued to newer companies and those with low credit scores. The requirements may vary depending on the specific loan program you’re applying for, but it’s possible to get funding with a credit score as low as 570.
• Flexible repayment terms: In addition to being able to get repayment terms up to 30 years, some programs may provide for deferred payments of up to 6 months.

Prohibited Uses of SBA Disaster Loans

Restrictions can vary based on the type of SBA disaster loan you get, so you should read your loan terms carefully.

Here are some examples of prohibited uses for an SBA economic injury disaster loan (EIDL), one of several types of disaster loans (which we cover in the next section). While there are some circumstances under which these are allowable for other types of SBA disaster loans, it is uncommon, and you should check your loan terms before using funds for the following:

• Paying bonuses or dividends
• Repaying other federal debt
• Funding relocation expenses
• Funding building expansions
• Purchasing additional real estate
• Paying penalties or debt that was incurred as a result of noncompliance with a federal law, state law, or government agency

Types of SBA Disaster Loans

Depending on your specific circumstances and needs, the SBA provides four main types of disaster loan programs:

1. Physical damage loans are used to cover repairs and replacement of physical assets.
2. Mitigation assistance loans offer funds to prevent/eliminate future damage.
3. EIDLs provide funding for operating expenses.
4. Military reservist loans are used to cover operating expenses for employees on active duty leave.

The SBA’s physical damage loan can provide funding for home and personal property and business assets.

• Home and personal property loans can be issued to you, even if you are not a business owner, as long as you live in a declared disaster area and have experienced damage to your home or personal property. You can get up to $500,000 for a residence and $100,000 for personal property.
• Business physical damage loans require you to be a business owner and can provide up to $2 million for the repair or replacement of real property, machinery, equipment, fixtures, inventory, and leasehold improvements.

Funding from the SBA’s mitigation assistance program is intended to help prevent damage from future disasters. If eligible for a disaster loan, you could also elect to get expanded funding to do certain building upgrades to make your business property more resilient against things like wind damage, floods, wildfires, earthquakes, and hail.

With the SBA’s EIDL, small businesses, agricultural cooperatives, and private nonprofits can get up to $2 million to cover working capital needs and regular day-to-day expenses. You must be able to document an inability to meet ordinary and reasonable operating expenses—costs that you could have covered had it not been for the natural disaster.

A reduction in staff can make it difficult to operate your business. If you find yourself in this situation as a result of employing military reservists who have been called to active duty, you can get up to $2 million to cover ordinary and necessary operating expenses with the SBA’s military reservist loan. Exceptions to the $2 million limit may apply to businesses that are deemed a major source of employment.

SBA Disaster Loans: Rates, Terms & Requirements

Loan terms and qualification requirements vary depending on the type of SBA disaster loan you choose.

• 3.75% for EIDLs (2.75% for nonprofits)
• 4% for BPDLs (8% if credit is available elsewhere)
• 4% for MREIDLs
• 4% for Home/Personal Property loans (8% if credit is available elsewhere)

• $2 million
• $500,000 for primary residence properties
• $100,000 for personal property

• Generally 625
• As low as 570 for loan amounts below $500,000

• Required for BPDL and EIDL loans greater than $25,000
• Required for MREIDL loans greater than $50,000

• Location: Your business must be located in a declared disaster area to qualify for funding.
• Impact on business or property: You must have suffered some form of damage, such as physical or financial damages, that occurred as a result of the declared disaster.
• Type of business: You must not be an ineligible business or industry, such as those involved with gambling or illegal activities

Timeline of a Typical SBA Disaster Loan

To get an SBA loan, there are a few things that must first occur at the federal and state levesl. Businesses can then apply for funding directly through the SBA.

The SBA website has a list of declared disasters eligible for assistance. Disasters can include hurricanes, tornadoes, droughts, wildfires, floods, and more. The extent of the damages caused by the disaster will determine the type and amount of assistance that will be made available.

To receive federal assistance, states must show that the amount of funding needed to help businesses is beyond their own capabilities. As part of this process, states must assess the type and scope of damage, including estimated damage amounts and impacted areas.

The information gathered will be used to determine eligibility requirements, after which the SBA will provide details on the type of assistance that will be provided as well as qualification requirements. Loan terms will also be provided and include interest rates and repayment terms.

SBA disaster loan applications are submitted via the SBA website. While other types of SBA loans are handled by individual lenders, disaster loans are reviewed and funded by the SBA itself.

To ensure a streamlined process and improve your chances of getting approved quickly, we recommend reading our guide on how to get a small business loan.

After you apply and provide the SBA with your completed application, it can take four to eight weeks to hear back. For this reason, it’s important to apply as soon as possible if you need funds to keep your business running. In extreme circumstances, the SBA may release a small amount of funds up front, with the remainder of funds being disbursed after it formally completes its review.

After receiving a loan approval from the SBA, you’ll be able to sign your final loan documents agreeing to the terms of the loan such as the interest rate, loan amount, repayment term, and monthly payment amounts. Loans are typically funded within one week of signing.

SBA disaster loans may have a short period of time in which the loan payments are deferred. This can vary depending on the disaster and the SBA’s evaluation of your loan application and business needs. Ultimately, deferred loan payments may be offered to give businesses temporary relief while normal business operations are restored.

Who an SBA Disaster Loan Is Right For

An SBA disaster loan is a good fit for businesses that are eligible and need funds to cover costs in various functional areas. Funds can help with operational expenses, repairs, and more.

• Your business was impacted by a disaster. In addition to being impacted by a natural disaster, your business must typically be located in a qualifying area. Check out the SBA’s website for a list of eligible disaster events and locations. Common types of disasters eligible for assistance are fires, storms, flooding, hail, hurricanes, and tornadoes.
• You are unable to get financing elsewhere. SBA disaster loans are not meant to be a primary source of funding. As a result, you may need to provide proof that you have tried and been unsuccessful in obtaining financing elsewhere.
• You need to pay for repairs as a result of natural disaster damages. Items physically damaged and in need of repair or replacement can be paid for with proceeds from an SBA disaster loan. Property owners and renters who are not business owners can also qualify for financial assistance if damage was done to their home or personal property.
• You need funds to cover operational expenses. You can use an SBA disaster loan to cover expenses that your business could have met had it not been for the disaster. This can include things like rent, utilities, business debt payments, and health benefit costs for employees.

If you had a separate insurance policy, you may also be able to use funds to cover anything that it did not issue a payout for. If your business has active duty military employees who have been called to service, you could even get funding to cover costs associated with this reduction in staffing.

How to Apply for an SBA Disaster Loan

To get started, you can apply for an SBA disaster loan online. Be prepared to provide a lot of paperwork. As part of the application process, there are SBA-specific forms that must be completed. You should also expect to be requested to provide certain financial statements for your business.

• IRS Form 4506-T: Gives the SBA permission to obtain a copy of your tax returns
• SBA Form 159: Fee disclosure form and compensation agreement; read our guide on how to fill out Form 159
• SBA Form 413: Personal financial statement listing things like assets, liabilities, and income; read our instructions on how to fill out Form 413
• SBA Form 2202: Provides a list of debts and financial obligations
• SBA Form 1368: Additional requirements form for EIDL loans; read our article on how to fill out Form 1368

The loan you apply for and your business circumstances will determine what documents the SBA will require. However, the documents below are fairly commonly requested items. If you have them prepared, you could save a significant amount of time getting your loan approved.

• Documents showing scope of damage from the declared disaster
• Evidence of your loan applications being denied by other lenders
• Tax returns (business and personal, up to 3 years)
• Profit and loss statements (current and prior years)
• Balance sheets (current and prior years)
• Cash flow statements
• Bank statements
• Business licenses
• Industry certifications

After you apply, it can take four to eight weeks before you receive funding. During this time, your application will be reviewed by the SBA to ensure it meets its lending requirements. You may need to provide additional documents to clarify any discrepancies, but once your loan is approved, you can sign your final loan documents to have funds disbursed.

• Review of loan application: The SBA will conduct an initial preliminary review of your application to determine if it fits the parameters of a loan that can be issued. It will also determine documents that will be required to verify your eligibility.
• Order inspections: Depending on your specific circumstances and loan type, an inspection may be required to assess the scope of damage and obtain an estimate of the amount of funds needed to repair or replace property or business equipment.
• Undergo loan underwriting: Once the SBA has received all of the required documentation, it will conduct a full review to determine your eligibility. It is not uncommon during this stage for the SBA to ask you for additional documents to address any questions or concerns it may have regarding your business.
• Discuss loan decision: Once the SBA has made a final decision on your loan, it will discuss its decision with you, including terms, repayment schedules, and interest rates. Decisions can include approvals or denials. It can also include counter offers if it can issue a loan to you with terms different from what you initially requested.
• Schedule loan signing: After you are approved for a loan, your next step will be to sign your final closing documents that outline the terms and conditions of repayment.
• Disburse funds: Disbursement typically occurs within one week of signing your final closing documents.

Frequently Asked Questions (FAQs)

It can take four to eight weeks to get funding from an SBA disaster loan. The length of time can vary depending on the total volume of applications received by the SBA, the complexity of your company’s credit and finances, and how quickly you respond to requests for additional information.

This depends on your circumstances. SBA disaster loans are available to newer companies and those with bad credit. However, it’s not unusual to need to complete a number of forms to aid in the SBA’s assessment of your eligibility, a process that can be tedious and time-consuming.

You can apply for an SBA disaster loan by visiting the SBA website. Most other types of SBA loans, by comparison, are offered through private banks and lenders.

Bottom Line

SBA disaster loans provide an affordable method of financing for businesses impacted by a declared disaster. Depending on the type of loan you get, funds can be used to help your business continue or resume normal operations. Some examples can include repairing or replacing business equipment, covering business expenses such as healthcare benefits for employees, and making business debt payments. Since it can take up to two months to get approved, it’s important to start the application process early.