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Small Business Administration (SBA) disaster loans explained
How to get assistance when your business or home is hit with a hurricane or other natural disaster.
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 non-profit 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.
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.
Compare SBA loan providers
These SBA loan providers offer traditional financing backed by the Small Business Administration. To apply for a disaster loan funded by the SBA directly, visit disasterassistance.gov.
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.
Does the SBA forgive loans in a disaster?
If you have an SBA loan, the short answer is no. Since most SBA loans are funded through a third-party lender, the Small Business Administration doesn’t have the authority to forgive any current debt. You also can’t use an SBA disaster loan to refinance current debts you have. You can, however, use your SBA home and personal property disaster loan to refinance your mortgage.
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.
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.
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