Posted on September 11, 2013 in Banking Issues
The Small Business Administration (SBA) offers disaster loans to businesses that have been impacted by severe weather, fire, acts of war and other situations that cause widespread damage. In order to be eligible for the loan, the business must be located in a federal disaster area. The SBA keeps a current list of current disaster declarations on its website, which you can sort by state. After ensuring that you are eligible for disaster relief, you can complete your application online. The report also indicates the date range of the disaster and the first date that federal loan funds became available.
Physical Disaster Loans for Businesses
The SBA does not impose a size limit on your business in order to apply for disaster relief funds. Both for-profit and private non-profit companies are welcome to apply for assistance. The maximum loan amount is two million dollars. You are allowed to spend the loan proceeds on the following items:
- Leasehold improvements
- Real property
The purpose of the SBA disaster loan is to help you pay for damages that are not covered by your business insurance policy. If your policy requires you to apply insurance proceeds towards the mortgage of your damaged property, you may include that amount in your SBA disaster loan request. You may be eligible to apply for a loan that is up to 20 percent greater than the real estate value if you make improvements that may prevent a similar disaster from happening again. Proceeds from the disaster loan cannot be used to expand or upgrade your business unless the changes are required by building code.
The federal government and the SBA take reports of fraud and abuse very seriously. To avoid problems, you must be certain to use the funds from your disaster loan exactly as dictated. If you feel that someone else is taking advantage of the program, you must report it to the SBA immediately.
Repayment Terms and Interest Rates
If you are unable to obtain credit elsewhere, the interest rate on your SBA disaster loan will not exceed four percent. Non-profit organizations and businesses that have access to other forms of credit will be charged no more than eight percent interest. The SBA has the final authority in determining if you have other credit available
to you. You may receive up to 30 years to pay off your loan, depending on your circumstances.
Economic Injury Disaster Loans
The economic injury disaster loan (EIDL) is a separate type of loan offered to business owners impacted by a natural or man-made disaster. You must own a small business, a small agricultural cooperative or a private non-profit organization. According to the SBA definition, a substantial economic injury means that you lack the funds to pay operating expenses that are considered ordinary and necessary. The loan proceeds are intended to provide you with the working capital you need during the disaster recovery period.
You may receive a loan up to two million dollars to assist you with meeting financial obligations that you would have been able to meet if the disaster had not occurred. The SBA determines your loan amount by your company's current financial needs and the actual economic injury you have suffered. It does not consider whether or not you have sustained property damage.
Eligibility for an EIDL is limited to business owners who are unable to obtain credit elsewhere. The maximum interest rate is four percent. Like the general disaster loan, you have up to 30 years to repay an EIDL based on your circumstances.
Disaster Loan Application Options and Instructions
Completing your application online is the fastest way to get the money you need to recover from a disaster. However, the SBA also permits paper applications. Regardless of how you apply, you must complete the following forms in full:
- SBA Form 5, Disaster Business Loan Application
- SBA Form 159D, Fee Disclosure Form and Compensation Agreement
- SBA Form 1368 if you are applying for the Economic Injury Disaster Loan
- SBA Form 413, Personal Financial Statement
- IRS Form 8821, Tax Authorization Information
- SBA Form 2202, Schedule of Liabilities
You must sign and date all forms in order for your application to be accepted.
Next Steps After Your Application is Received
Once the SBA has received and processed your disaster loan application, it will send an inspector to your commercial property to estimate the cost of damages. The inspector then provides this information to the loan processor who uses it as a basis for determining your loan amount. Depending on how you submitted your application, you will be notified via postal mail or email about its status.