Small Business Administration (SBA) disaster loans explained

The federal government regularly revises the details of these programs as the coronavirus outbreak affects more businesses. We’ll update this page as new details emerge in the world’s response to COVID-19.

The Small Business Administration disaster loan program is available to small businesses recovering from a natural disaster, or that have an employee who was called up for active military duty.

These low-interest loans are available based on the impact the disaster had on your business. But you might not qualify for a FEMA grant if you take out an SBA disaster loan first.

Disaster loans for business affected by the coronavirus

The SBA is offering Economic Injury Disaster Loans (EIDLs) to small businesses and nonprofits in areas affected by COVID-19. You can use the funds to pay off debt or cover coronavirus-related losses. Thanks to the Coronavirus Aid, Relief and Economic Security (CARES) Act, business owners could previously apply for an advance of up to $10,000 in the form of a grant, but funds have since run out as of July 11, 2020. The grant program may reopen if more funding is approved by Congress.

Here’s how Economic Injury Disaster Loans break down:

• Loan amounts: Up to $2 million — though The New York Times reports that they’re now capped at $15,000, plus the advance when it was available
• Rates: 3.75% for small businesses, 2.75% for nonprofits
• Terms: Up to 30 years, based on your ability to repay
• Deferment: You have the option to postpone repayments until one year after you take out the loan
• Personal guarantee: Owners must personally guarantee loans over $200,000

Who qualifies?

Businesses must meet size standards, which vary by business type, in addition to several other requirements.

Business type and size requirements

The following types of businesses qualify for an EIDL during the coronavirus outbreak:

• Businesses that meet SBA size requirements
• Businesses with 500 employees or fewer
• Employee stock ownership plans (ESOPs) with 500 employees or fewer
• Nonprofits — including faith-based organizations
• Agricultural businesses with 500 employees or fewer
• Tribal businesses with 500 employees or fewer
• Independent contractors and sole proprietorships

EIDL disaster loans are now open to businesses in all states and territories. Previously, you had to be located in a state where the government has declared an economic disaster.

Additional requirements

Your business must also meet the following criteria to qualify for this loan:

• Established as of January 31, 2020
• No significant revenue from adult entertainment of a sexual nature
• No more than one-third of revenue from gambling
• No lobbying groups
• No state, local or municipal government entities
• No members of congress
• No majority owner is more than 60 days late on child support payments
• Acceptable credit history, by SBA standards

How do I apply?

Follow these steps to apply for an SBA disaster loan:

1. Check your eligibility. Make sure your business meets the SBA size requirements if it has over 500 employees.
2. Apply online. SBA disaster loan applications are available directly through the SBA website — and are a lot simpler than your typical SBA application.
3. Save your confirmation number. You might not receive a confirmation email with your application number. Write it down or screenshot the confirmation screen after you submit the application for your records.
4. Get in touch. Call 800-659-2955, TTY 800-877-8339 or email disastercustomerservice@sba.gov to talk to an SBA official if you have any questions about the process.

Eligibility and loan amounts mainly are based on the financial impact of the outbreak on your business.

10+ business grants for those affected by the COVID-19 pandemic

How long does it take?

“Once a borrower applies, the approval timeline depends on volume,” Michael Myhre, the CEO of the Florida Small Business Development Center (SBDC) Network told Finder. “The typical timeline for approval is two to three weeks, and disbursement can take up to five days. There is currently a high demand, so the agency has expanded its capacity to process applications.”

As for grants, those are much faster. “Funds will be made available within days of a successful application, and this loan advance does not have to be repaid even if the grantee is subsequently denied an EIDL,” Myhre says.

Grants vs. bridge loans

The SBA was offering advances of $10,000 per applicant in the form of a grant. But due to high demand, it reduced grant amounts to $1,000 per employee as of January 31, 2020, up to $10,000. As of July 11, 2020, the advances are no longer being offered altogether.

However, the SBA is also offering Express Bridge Loans of up to $25,000 for businesses that already have an existing SBA relationship. You’ll have to apply through your lender but can refinance the loan with all or part of your EIDL, when you receive the funds.

Refinancing with a Paycheck Protection Loan

The CARES Act also created a new SBA loan and grant program — the Paycheck Protection Program loan — to encourage employers to keep workers on payroll. With this program, you can borrow up to $10 million and get up to your full loan amount reimbursed if you keep your employees on salary and spend the funds on eligible expenses. And rates are lower, at 1%.

If you took out an EIDL between January 31, 2020 and April 3, 2020 to cover payroll expenses and apply for a PPP loan, you’re required to refinance your EIDL with your new loan. If you used it for other operating expenses, it’s ineligible for PPP refinancing. Applications to apply for the Paycheck Protection Program loan were also extended to August 8, 2020.

Deferred repayments on current disaster loans

The SBA is automatically deferring repayments on all current disaster loans until December 31, 2020. So if you’re currently repaying a disaster loan, you don’t need to make repayments any more until that date.

You can find out more about loans for businesses affected by COVID-19 by reading our guide.

What’s an SBA disaster loan?

An SBA disaster loan is a low-interest term loan for businesses and homes that have been affected by a natural disaster, like a hurricane, tornado, drought or flood. It’s the only loan program that the Small Business Administration directly funds, so you apply through the agency rather than a local bank.

4 types of SBA disaster loans

There are two main types of SBA disaster loans: physical damage loans and economic injury loans. These loans are available to business owners who have suffered physical damage or economic loss, military reservists who’ve been called for active duty and home or property owners in disaster areas.

1. SBA business physical disaster loan (BPDL)

BPDLs are secured long-term loans that business owners can use to replace anything damaged or lost during a natural disaster. This includes equipment or machinery, inventory, real estate and property damage and improvements that your business made on a lease.

Unlike other SBA loans, BPDLs are available to both for-profit and non-profit businesses of all sizes. They’re meant to help pay for damages that your insurance doesn’t cover.

• Loan amounts: Up to $2 million.
• Interest rates: Up to 4% if the SBA thinks your business can’t qualify for credit elsewhere; up to 8% if it thinks it can.
• Terms: Up to 30 years, depending on your business’s ability to repay.

2. SBA economic injury disaster loan (EIDL)

EIDLs are essentially working capital loans for small for-profit and nonprofit businesses that have suffered a loss in revenue due to a natural disaster. They’re meant to help small businesses stay up and running while the disaster area recovers. Small agricultural co-ops are also eligible for this loan.

• Loan amounts: Up to $2 million, depending on your company’s needs and including funds from a BPDL
• Interest rates: Up to 4%
• Terms: Up to 30 years, depending on your ability to repay

The New York Times reports that EIDL amounts for businesses impacted by the coronavirus are capped at $15,000 — not including the $10,000 advance — due to an influx of applications. However, the SBA hasn’t made any official notice of this change on its website.

3. SBA military reservist economic injury disaster loans (MREIDL)

MREIDLs are long-term loans for businesses that suffer an economic loss because one or more employees has been called up for active duty. Business owners must meet certain insurance requirements to be eligible, like have interruption insurance or flood insurance if the business is located in a flood-prone area.

How much your business is eligible to borrow depends on how much its interruption insurance covers and if you have enough money to keep it up and running as usual. Your business can’t use an MREIDL to make up for lost income or profits or to refinance current debts.

• Loan amounts: Up to $2 million, based on the amount of economic injury the SBA believes your business has suffered; large businesses might be able to qualify for more
• Interest rates: 4%
• Terms: Up to 30 years

4. SBA home and personal property disaster loans

These loans are for people who own or rent a home, condo or other real estate that was damaged during a natural disaster. These loans are only extended for your primary residence — you can’t use them to repair your vacation home. And SBA home and property disaster loans can only be used to repair your home — the only upgrades allowed are those that might help prevent property damage in the future. In fact, you might be eligible to borrow up to 20% more than the real estate damage if you make those kinds of improvements.

You can also use this loan to replace lost personal items like cars, clothes, furniture and appliances. The property must be your primary residence and be located in a declared disaster area to be eligible.

• Loan amounts: Homeowners can borrow up to $200,000 to make property repairs and renters and homeowners can borrow up to $40,000 to replace personal property
• Interest rates: Up to 4% if the SBA believes you can’t get credit elsewhere; up to 8% if it thinks you can
• Terms: Up to 30 years

Need a business loan fast? Consider these lenders

You can only apply for an SBA disaster loan on the Small Business Administration’s website. But it can take a few weeks to get funding. If you need money ASAP, a non-government business loan from one of these lenders can help you bridge the gap in the meantime.

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What can I use an SBA disaster loan for?

Depending on which type of SBA disaster loan you apply for, you might be able to use it for the following purposes:

• Repairing damaged real estate
• Property upgrades that decrease the future risk of damage
• Repairing machinery
• Working capital
• Replacing damaged inventory
• Replacing or repairing damaged vehicles
• Refinancing a personal mortgage
• Repairing leasehold improvements

Do I qualify for an SBA disaster loan?

For most of these SBA loans, you or your business must be located in a declared disaster area to be eligible, with the exception of an MREIDL. Other requirements depend on the program you apply for.

• BPDL: Your business must be located in a declared disaster area and be physically damaged during the disaster.
• EIDL: Your business must meet the SBA’s definition of a small business and show it hasn’t been able to qualify for credit with another lender.
• MREIDL: You must meet the SBA’s credit standards (typically a credit score of 640 or higher), have hazard insurance for loans over $50,000 and flood insurance if the business is located in a flood-prone zone. You also must prove your business won’t survive without SBA assistance.
• Home and personal property loan: The home or property must be your primary residence located in a declared disaster area.

How to apply for an SBA disaster loan step by step

Follow these steps to apply for an SBA disaster loan. MREIDL applicants can skip the first two steps.

• Step 1: Wait for the president to declare a designated disaster area.

  You aren’t eligible for a disaster loan unless you or your business is located in a designated disaster area. Once you’re officially in a disaster area, you can get started on your application.

• Step 2: Register with the Federal Emergency Management Agency (FEMA).

  Before you get started on your application, register with FEMA for disaster assistance. You can do this online by visiting disasterassistance.gov or by calling 800-462-7585. Have the following information on hand before you get started:

  • Your address, including the ZIP code.
  • Directions to your home or business.
  • The condition of your damaged property.
  • Insurance information, if applicable.
  • Your Social Security number.
  • A phone number where you can be reached.
  • A mailing address.
  • Your bank account type, number and bank routing number.

  FEMA might refer you to the SBA after you register if it can’t provide grants itself. You’ll need your FEMA registration ID to apply for a home and property disaster loan.

• Step 3: Apply online for an SBA disaster assistance loan.

  The fastest way to apply for an SBA disaster assistance loan is online.

  1. Go to the SBA’s disaster loan assistance page.
  2. Click Apply Online.
  3. Click Register in the top navigation bar to create an account. If you already have one, enter your username and password and skip the next step.
  4. Enter your personal and contact information before checking the box allowing the SBA to give your information to third parties to verify your identity. Then hit Next.
  5. Follow the directions to complete the application. Then review and submit it.

  Can’t apply online? You can visit your local disaster center in person or by mail.

• Step 4: Wait to hear back from the SBA.

  After the SBA runs a credit check, it’ll contact you to set up a time for an on-site inspection if you’re creditworthy and meet other eligibility requirements.

• Step 5: Have an on-site inspection.

  Here, a site inspector visits your property to assess your losses. This is where the SBA determines how much you can borrow. How long this takes varies widely, depending on your unique situation.

• Step 6: Go over and complete your application with a loan officer.

  Once you’ve finished the site inspection, an SBA loan officer will reach out to you to help you complete your application. Submit any additional documents if required. If you’re approved, the loan officer will bring you your closing documents. This step can take between two and four weeks.

• Step 7: Receive your funds.

  It can take up to five days to get your initial funds after you sign your closing documents. The SBA typically disburses $25,000 first, then the remaining funds after.

• Step 8: Work with a case manager to pay back your loan.

  After you’ve received your funds, the SBA assigns you a case worker to help you meet all of the conditions of your loan and schedule the rest of your funds to be disbursed.

Disaster loans vs. disaster grants

SBA loans might be available as soon as disaster hits, but research all of your options before you submit your application. You might not be able to get approved for a government disaster grant if you already have a disaster loan.

In fact, one of the top complaints from disaster victims is that they weren’t aware that government grants would be available when they applied for an SBA loan — and they weren’t aware that already having an SBA loan made them ineligible for a grant. Even just applying for an SBA loan and then later rejecting it can make you ineligible for all of the grant money you would have been entitled to.

It’s not always clear what funding is available right away, so consider waiting to learn what your options are first.

WATCH: 4 tips to boost your chances of getting approved

Bottom line

When disaster strikes, an SBA disaster loan can help you and your business get back on its feet. The application is not nearly as complicated as a typical SBA loan, and the SBA caps interest rates at 4% if you can’t get credit elsewhere. But you might want to wait to apply to make sure you don’t accidentally disqualify yourself from a disaster relief grant.

Want to learn more about your business financing options? Check out our guide to business loans, where you can find out how different types of loans work and start comparing lenders.

Frequently asked questions

• What type of collateral does the SBA ask for?

  It depends on your or your business’s personal situation. Common types of collateral include a first or second mortgage, vehicles or other personal and business assets. The SBA might also accept a personal guarantee instead of collateral.

  Loans under $50,000 for businesses and $25,000 for individuals might not require collateral at all. And the SBA might still approve your application for loans over that amount, even if you can’t provide enough collateral to back the full value of your loan.

• Can my business apply for both an economic injury and physical disaster loan?

  Yes, although it can still only qualify for a total of $2 million in funds between the two loans.

• What does loss verification mean on an SBA loan?

  The loss verification process is essentially step five of the application process: The site visit. An SBA official comes and inspects your property to assess the damage to tell you how much you’re eligible to borrow.

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