10/06/18

SBA Disaster Loans: Everything You Need to Know

If you follow the news much, you’ve noticed that it’s often disaster-oriented. Many areas of the country have been battling record-breaking wildfires this summer, with the massive blazes in California capturing the most headlines. According to The New York Times, this year’s Mendocino Complex Fire was the biggest in California history. And the Carr Fire burned more than a thousand homes and led to eight people losing their lives.

In North Carolina, people are still trying to recover from the brutal impact of Hurricane Florence. And in Hawaii, residents are hoping for a reprieve from Kilauea Volcano. Its fearsome flows covered thousands of acres of land and destroyed more than 700 homes.

While it’s easy to become nervous in turbulent times, business owners should know that the U.S. Small Business Administration (SBA) has their backs, providing low-interest disaster loans when necessary. These long-term loans are meant to help a business after physical or economic damage is caused by a declared disaster. They’re available to businesses of all sizes, private non-profit organizations, homeowners, and renters.

What kind of SBA disaster loan do you need?

An SBA disaster loan can be used to repair or replace real estate, personal property, machinery and equipment, and inventory and business assets. But don’t go thinking that you could use one to expand your operations. The rules clearly state that it’s only intended to restore things to the way they were before the disaster.

Here’s a quick look at the different varieties of disaster loans offered by the SBA:

Home and Personal Property Loans

For those living in a declared disaster area and who have been victims of a disaster, there may be relief available through these loans. It’s worth noting that even though these loans are provided through the SBA, you don’t need to actually own a business to qualify.

Business Physical Disaster Loans

If your business or organization is within a declared disaster area and sustained damage during that disaster, you can apply for one of these loans. They provide up to $2 million and are intended to help you replace or restore any damaged property

Economic Injury Disaster Loans

Perhaps you live in a declared disaster area and experienced economic injury due to the disaster. This type of loan is specifically relevant in situations where your business didn’t suffer any physical damage, but was harmed nonetheless. You can receive up to $2 million to cover expenses you would’ve been able to pay if the disaster hadn’t occurred.

Military Reservists Economic Injury Loans

This loan is specifically earmarked for business owners who employ a military reservist called to active duty. In these situations, the SBA funding can help your business with operating expenses.

Do you live in a disaster area?

If you’re wondering what constitutes a disaster, you probably don’t live in a disaster area. Those who do are well acquainted with the substantial damage, both physical and economic, that occurs when an area is hit.

You can search for Presidential and SBA declared disaster areas by state and territory with the SBA’s online database. Recent examples include parts of California and Arizona affected by the Cranston Fire, areas in New Mexico affected by severe storms and flash flooding, areas of Colorado impacted by the Westminster Apartment Fire, areas of Kansas and Missouri impacted by drought, and areas of Florida impacted by Hurricane Irma.

Here’s how to apply for an SBA disaster loan:

If a Presidential disaster is declared in your area, you need to first register with the Federal Emergency Management Agency (FEMA). To get started, call FEMA at 1-800-621-3362 or visit DisasterAssistance.gov.

After you’ve gotten a registration number from FEMA, you’re ready to complete your SBA online application. You’ll need to have the following information handy:

The SBA will review your application, then send an inspector to do an onsite review and to estimate the cost of your damage. The SBA makes these loans a priority, so you can expect to hear back on their decision within a few weeks.

One thing to note is that the most commonly cited reason for delays in the process is an incomplete application. With this in mind, spend a little extra energy making sure every detail is correct before you click submit.

Also, don’t wait for any insurance settlements before you file your loan application. This is another common delay that can cause borrowers to miss the filing deadline. If a settlement is made after you’ve applied, you can simply add the final insurance information at that time.

Repaying your loan is pretty simple…

Disaster loans provided through the SBA are designed to help business owners, so it comes as no surprise that the terms and rates are generous. If you’re a business that doesn’t have credit available elsewhere, you can expect the interest rate to be capped at 4%. If you have credit available elsewhere, the interest rate won’t exceed 8%.

Perhaps you’re unsure how to determine whether or not you have credit available from other sources. Don’t worry, the SBA has their own qualification system and will determine that during the application process.

Depending on your business’s ability to pay back the loan, you may have a term as long as 30 years. Again, this will be determined by the SBA. Regardless of the term, you can easily make one-time payments or schedule recurring payments on Pay.gov.

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About the author

Grant Olsen
Grant Olsen
Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on FitSmallBusiness.com and ModernHealthcare.com. Grant is also the author of the book "Rhino Trouble." He has a B.A. in English from Brigham Young University.

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