Disaster loans are provided by the U.S. Small Business Administrations (SBA) for those who’ve experienced financial hardship due to a catastrophe.

In times of major catastrophes, many individuals’ livelihoods could be at risk. Destruction of property and impacts to employment may result in a financial burden for some. For those impacted, disaster loans provided by the government may help restore their businesses or homes into pre-disaster condition.

U.S. Small Business Administrations (SBA) Disaster Loans

The SBA is a cabinet-level federal agency that specializes in assisting small businesses by providing capital and counseling. They provide small business disaster loans, which are designed to provide emergency financial assistance after a disaster. Beyond the actual target group, the SBA also offers disaster loans to private homeowners and renters.

Physical Disaster Loan

A physical disaster loan may cover repairs, reconstruction, and replacement of property damaged by a physical disaster.

Economic Injury Disaster Loan

These loans may provide economic assistance to small businesses and non-profit organizations that are located in disaster declared counties or contiguous counties and have suffered economic losses due to property damage or resulting defaults.

Military Reservist Loan

This loan assists small businesses with operating costs incurred by active-duty employees being furloughed.

Economic Injury Disaster Loan Program (EIDL)

The SBA Economic Injury Disaster Loan is a federal assistance program for repairing and rebuilding non-farm, private sector disaster losses. This SBA disaster loan program is unique among the SBA’s assistance offerings. Not only is it open to their target group of small businesses and non-profit organizations, but it can also be requested by private individuals.

To qualify for the SBA Economic Injury Disaster Loan, the applicant must be a private individual, small business, small agricultural cooperative, or private non-profit organization that has suffered financial loss caused by a disaster. The applicant must also be located in a declared disaster area that has suffered a substantial economic injury. It’s not relevant whether the business suffered any property damage.

The U.S. SBA distributes Economic Injury Disaster Loans up to a loan amount of $2 million, with the actual amount depending on the significance of the economic injury. There are no upfront fees, and the repayment terms are flexibly adjusted to the borrower’s ability to pay.

Maximum Credit Term 30 years
Interest Rate max. 4%
Maximum Loan Amount $2.0 million
Payment Frequency varies
Collateral Requirements preferably real estate for loans over $25,000

COVID-19 EIDL

It’s become clear, especially in recent years, that a disaster can cause great economic damage without any physical destruction. COVID-19 has deprived many employees and small business owners of their livelihoods. Lost jobs and lost customers due to curfews and no-contact orders have resulted in billions of dollars in damage.

In response to the COVID-19 pandemic, the U.S. Small Business Administrations have established the COVID-19 EIDL program. Under this program, small business owners and nonprofits that suffered economic losses due to the coronavirus can apply for emergency financial assistance. This help is intended to cover financial obligations and operating costs that could have been covered by the organization’s own resources in the absence of the pandemic.

The COVID-19 EIDL is limited to an amount of $2.0 million and can be used as working capital and for normal operating expenses. This EIDL also does not have any pre-payment penalties or fees.

Maximum Credit Term 30 years
Interest Rate 3.75% for businesses (fixed)

2.75% for nonprofits (fixed)

Maximum Loan Amount $2.0 million
Payment Frequency varies
Collateral Requirements preferably real estate for loans over $25,000

How to Apply for a Disaster Loan?

To apply for a U.S. SBA disaster loan, you simply need to go to the SBA’s website and fill out a few forms online. You’ll also need to complete Form 4506-T, which authorizes the IRS to submit your tax information to the SBA.

Once you’ve completed and digitally signed the application, processing begins. SBA will send an inspector to estimate the cost of your damage once you’ve completed and returned your loan application. Once this assessment is complete, the loan amount and the terms of the contract will be determined. If you agree with the terms, you sign the contract, and the money is transferred to your account as a lump sum.

What Can Disaster Loans Be Used For?

SBA disaster loans are generally intended for specific uses, which are limited to the damage caused by the disaster. This can be physical damage to the building but can also include working capital and operating expenses.

Who Qualifies for Disaster Loans?

According to the purpose of the U.S. Small Business Administration, the SBA disaster loans primarily serve small businesses. However, the loans are also available to small agricultural cooperatives, private non-profit organizations, and individuals.

Another requirement is that the damage must’ve been caused by a disaster that puts private individuals in financial distress and makes businesses unable to meet obligations and expenses.

SBA Loans Are Not the Only Solution

Although SBA disaster loans are designed to be particularly flexible for people in need and are not profit-oriented, you may find a lower interest rate, if eligible, with a personal loan.

For individuals who cannot obtain a loan otherwise, or can only take out a high-interest emergency loan, an SBA disaster loan could be a great option. For individuals with good credit, however, a personal loan with an online lender may be a better option. There may also be lower interest alternatives for business loans. Before making any major decisions, be sure to take a look at a comparison portal for online personal loans to get a better understanding of your options.