What SBA Disaster Loans Are & How To Qualify For One

Even the most prepared small business can suffer an unforeseen disaster or business interruption. These businesses may be able to benefit from low-interest SBA disaster loans.

Whether your area was affected by a wildfire, tornado, hurricane, pandemic, or another catastrophic event, the next steps can feel daunting or overwhelming. Many home and business owners find that insurance won’t cover as much as they thought — and that leaves a large gap between where they are now and the ability to move forward with everyday life as usual.

Thankfully, there is an option to finance the funds needed to rebuild — funds that can help not only business owners but homeowners as well. Offering no upfront fees, no penalties for paying off the loan early, and low interest rates, an SBA disaster loan can help you put the pieces back together after a life-altering event.

What Are SBA Disaster Loans?

SBA disaster loans are low-interest business term loans offered to businesses in federally declared disaster areas.

While the primary mission of the Small Business Administration is to support entrepreneurs, with special programs focused on women, veterans, low-income, and minority business owners, the SBA also offers low-interest loans to assist business owners, homeowners, and renters after a disaster. No matter where you fall on the insurance spectrum — whether you’re covered well, are underinsured, or have no protection — FEMA recommends applying for an SBA loan to cover gaps in insurance coverage or to provide bridge funding before the insurance check arrives.

Am I Eligible For An SBA Disaster Loan?

Only businesses located in an officially declared disaster area can access SBA disaster loans. Generally, there are seven ways a disaster can be declared:

1. A Presidential declaration for individual assistance is requested by the governor of a state. The presidential declaration activates FEMA and will automatically make SBA disaster loans accessible to businesses and private, nonprofit organizations.
2. An administrative agency declaration can be made by the governor of the state, which activates the SBA’s disaster loan program, making loans available to businesses, homeowners, and renters.
3. A Presidential declaration for public assistance can also be requested by the governor. Once the President approves, business physical damage and economic injury loans are made available.
4. The Secretary of Agriculture can declare a disaster area. The SBA will then also announce the availability of disaster loans relating to businesses engaged in agriculture.
5. A governor certification declaration occurs when a governor goes to the SBA directly and requests a declaration based on certification of the damages in an area.
6. The Secretary of Commerce may determine that some eligible small businesses have economic injury directly related to commercial fishery failures or resource disasters.
7. A military reservist declaration can be made for individuals who are considered “essential employees” and are called up to active duty as military reservists during a period of military conflict. Working capital loans can be made available to businesses that aren’t able to meet ordinary and necessary operating expenses due to the absence of essential employees.

Read on to find out more about the types of SBA disaster loans and to find the option that best fits your situation.

SBA Disaster Loan Terms & Rates

Here’s an overview of SBA disaster loan terms and rates:

Note, that disaster loans are just one type of SBA loan.

Types Of SBA Disaster Loans

Disaster Loan Repayments

SBA disaster loans are long-term business loans. They accrue interest over time and are repaid on a monthly schedule until the principal is paid off. There’s no penalty for paying the loans off early.

SBA Disaster Loan Deferral Policy

SBA disaster loans typically have a deferment period of five months during which payments do not have to be made but interest still accrues.

SBA Disaster Loan Forgiveness

Generally speaking, SBA disaster loans cannot be forgiven. One recent exception was the Paycheck Protection Program (PPP) that was offered during the COVID-19 pandemic. That program has since ended, however, and none of the SBA disaster loans being offered currently have a forgiveness clause.

More About The SBA Disaster Loan Process

From credit checks to collateral requirements, here’s more about the disaster loan process.

Does The SBA (Or FEMA) Perform Credit Checks?

To obtain a disaster loan, you will need to demonstrate a history of creditworthiness. The SBA will perform a credit check. If you’re worried that your lack of credit history will deter you from getting the funds you need, take heart — there’s another route to demonstrating your ability to pay. The SBA will examine your history of paying utilities, rent, or insurance as positive evidence that you can repay.

It’s a wise move to know your credit score before you apply so that you can be prepared. Take advantage of some of the best free sites to check your credit and stay informed.

What About Disaster Relief Loans For Bad Credit?

As stated above, the SBA will perform a credit check. While you need to show you have regularly made payments on accounts, you don’t need to be too concerned if you have a few negative marks on your credit report as long as the majority of your accounts are in good standing with the reporting agencies.

Do I Need Collateral?

If you need more than $25,000, the SBA will likely require collateral to secure your loan. Typically, the SBA accepts real estate or other assets to secure your loan, but don’t be too discouraged if you don’t have collateral. If you are otherwise eligible for an SBA Economic Injury Disaster Loan and have no collateral to provide, you may simply be required to pledge what is available. The program is set up to be as accessible as possible, so you will be considered whether you have collateral or not.

SBA Disaster Loan Application Process

The first step in the application process for an SBA disaster loan is to fill out an application at the Disaster Loan Assistance portal through the SBA. Here, you will be able to verify whether you’re in a disaster area, apply online (or find the phone numbers you need), and check on your application once it’s submitted.

When you’re trying to recover from a disaster and start rebuilding, time is of the essence. This is why it’s important to begin gathering the documents you’ll need to keep things moving forward:

• Start making an itemized list of your losses
• Include estimates to repair or replace items
• Obtain a copy of the necessary federal document (income tax information) that is referenced in the application
• Provide a brief history and overview of your business
• Gather business and personal financial statements

The good news is that, unlike a typical SBA loan, funding for an SBA disaster loan can be completed in as little as seven to 21 days. You may receive your funds in increments as you begin repairing to cover the necessary costs.

Alternatives To Federal Disaster Loans

If you’re forced to seek alternatives to an SBA loan, there are other options. Whether the SBA denies disbursement or you simply want to shop around and find the best financing options for your particular situation, check out our picks for the best business loans. With an online loan, you may be able to get your funds faster. Pay attention to rates and repayment terms, as these are typically less attractive than what the SBA can offer.

After a disaster, you may feel that you’re treading water for a while. Fortunately, with the help of disaster assistance loans, you do have hope and resources to make progress again. Follow the references listed above to learn more and start the healing and recovery process.

Remember not to assume you won’t qualify before taking reading through our guide to qualifying for an SBA loan. We can also help you get a sense of how much your loan will cost and keep you updated on the SBA’s current rates.