SBA disaster assistance can help homeowners, renters and businesses recover from declared disasters like floods, fires, hurricanes and even social disasters like civil unrest or global pandemics.
It’s a common misconception that these programs are only for small businesses because they are administered by the Small Business Administration. However, renters and homeowners in affected areas are also able to get help.
In this article, we’ll review what SBA disaster assistance is, who is eligible for, how you apply for it, and what happens after your loan is approved.
What is SBA disaster assistance?
The SBA disaster assistance program offers low-interest loans to businesses, homeowners and renters in declared disaster areas. These loans can be used for many different purposes, including repair & replacement of damaged physical assets and operating expenses for small businesses.
This program is administered by the US Small Business Administration (SBA). This organization provides many supportive services for small businesses, including counseling and low-cost training. There are more than 1,800 SBA locations across the United States.
Who is eligible?
In order to be eligible for a SBA disaster assistance loan, you must meet the following requirements:
- You must live in an area with a current disaster declaration.
- You must rent, own a home, or run a business or nonprofit in the declared disaster area.
Other eligibility requirements may vary depending on which loan program you are applying for.
SBA Disaster Assistance Loans
There are five distinct SBA disaster loan assistance programs. You need to make sure that you apply for the right one for your situation.
Home & Personal Property
If you are a renter or a homeowner, you will most likely apply for the Home & Personal Property Loan program. Most people assume that SBA disaster assistance is just for businesses, but this program is entirely dedicated to helping residents who have been affected by local disasters!
This program has two parts: one for homes and one for personal property.
Homeowners can apply for up to $500,000 to repair or replace their home, as long as it is their primary residence or a qualified long-term rental property. Vacation homes and second homes are not eligible.
There is, of course, a catch. These loans are intended to cover things that aren’t already covered by insurance or other sources. Any amount that you receive from insurance coverage may be deducted from the total loan amount.
This program has collateral requirements as well. Given the fact that these loans are issued during disasters, SBA expects collateral “to the extent possible.” They ask for whatever collateral is available but will not decline a loan if no collateral is available.
The loans that you receive through this program will have a 30-year term and an interest rate that will not exceed 4%. That’s a much more affordable rate than most vehicle and personal loans! For the first 12 months, there will be no payments due and no interest will accrue.
Business Physical Disaster
Businesses and most nonprofits may be eligible for a Business Physical Disaster Loan from the SBA if they need help recovering from a disaster.
This program can provide up to $2 million to eligible businesses. The amount is intended to cover losses that are not fully covered by insurance. You will be expected to provide collateral “to the extent possible” for loans over $25,000.
These loans can be used to pay to repair or replace the following:
- Leasehold improvements
- Real property
Like other SBA loans, the term is 30 years and no payments are expected in the first year. Interest doesn’t accrue during the first year, either. However, your interest rate will be determined based on whether SBA thinks you can obtain credit from other sources. If you can’t, the interest rate will be 4% or less. If you can, the interest rate could be up to 8%.
Mitigation assistance is available to help homeowners and business owners reduce the risk of future damage. Before the loan can be approved, SBA must approve the mitigation measures.
Some covered mitigation measures typically include:
- Garage door upgrades or braces
- Hail protection
- Landscaping to improve runoff or drainage
- Relocating outside a flood plain
- Roof deck sealing
- Roof straps
- Roof upgrades
- Storm shelter or safe room installation
- Structure elevation
- Sump pump installation
- Upgrading materials
- Vent screening
- Window film installation
- Window upgrades
The goal of Mitigation Assistance is to ensure that your property is protected against future disasters.
Economic Injury Disaster Loans
Small business owners, agricultural cooperatives and most nonprofits can receive economic support through the SBA EIDL program. This program was especially popular during the nationwide COVID-19 pandemic.
In order to be eligible for this program, you must be able to demonstrate that you are unable to meet your ordinary and necessary operating expenses due to a declared disaster. You also need to prove that you are unable to obtain credit elsewhere. You must provide collateral for loans over $25,000.
“Ordinary and necessary operating expenses” can include a range of costs, including rent, utilities, wages, health care benefits, debt payments and more.
The SBA can provide up to $2 million to help you meet financial obligations and operating expenses. However, you must show that you could have met those expenses if the disaster had not occurred. Any amount that you receive will be based on your actual losses and needs.
Loans granted through this program have a 30-year term. The interest rate will not exceed 4%. For the first year, there will be no payments due and no interest will accrue.
Military Reservist Loans
Businesses and nonprofits that employ military reservists may be able to receive an SBA loan when their employee is called to active duty. This program can provide up to $2 million, based on the actual economic injury, business interruption insurance and state of your business’ funds.
In order to be eligible, your business must be unable to cover the recovery costs without help. You must also be able to put up collateral for loans greater than $50,000. You will be required to pledge any available collateral, but the loan will not be declined if no collateral is available.
You must use the funds to cover “ordinary and necessary operating experiences,” as defined above. You can’t use the funds to cover lost income, expand the business or refinance debt.
Just like all other SBA loans, there is a 30-year term. The interest rate will not exceed 4%. No payments or interest will be accrued in the first year.
Other SBA Disaster Assistance
Although the SBA Disaster Assistance Loan program is the primary way that this organization assists people during disasters, there are other ways that the SBA may be able to help you.
If your home has been destroyed or has become uninhabitable, SBA may be able to pay for temporary shelter elsewhere. Even if you get help repairing your home from FEMA, you may be able to get additional help from SBA to cover the remaining costs of recovery.
If you aren’t eligible for an SBA Disaster Assistance Loan, SBA can refer you to FEMA’s Other Needs Assistance program. This program can help you meet essential needs that are not met by any other form of assistance. However, you need to complete an SBA loan application in order to get a referral to FEMA.
How do you apply?
Applying is actually very easy! You just need to follow a few steps.
First, you should register with FEMA. You can do this at disasterassistance.gov.
Next, you need to go to the SBA Disaster Loan Assistance website and fill out an application. If you prefer, you can visit a local disaster center or call the SBA’s Customer Service Line at (800) 659-2955 to request an application.
When you fill out the application, you’ll need to provide a lot of information. Some sources say that SBA loans require even more information than traditional loans do.
You need to be prepared to provide personal financial statements, tax returns, and proof of identity. If you are a small business owner, you will also be asked for income statements, balance sheets, cash flow projections, articles of organization and other details.
Whenever disaster strikes, SBA also sets up Recovery Centers to help renters, homeowners and business owners connect with these resources. You can schedule an appointment with your local SBA disaster office online. Many will also have walk-in hours as well.
What happens after I apply?
Before your loan is approved, it will be sent to SBA’s loss verification team. They may conduct a property inspection to determine the extent of the damage.
Once that step is complete, a loan officer will process the loan application. They’ll work with you to get any additional information, review any insurance payouts, and recommend a loan amount that will meet your needs.
According to SBA, they try to complete these steps within three weeks of receiving your complete application and required documentation.
What happens after my loan is approved?
When your loan is approved, SBA will prepare loan closing documents. You’ll need to carefully read and sign all the documents that they provide.
Once they get all the signed documents back, they’ll schedule an initial disbursement. This first payment is typically made within five business days. It’s capped at $25,000 for physical damage and $25,000 for economic injury.
At this point, you will be assigned to a case manager. The case manager will help you find answers to your questions and make sure that you understand the loan program requirements. They’ll help you meet any necessary requirements, and schedule the payment for the remaining loan amount.
If circumstances change after closing, you can request that your loan be increased by up to 20%. This change may be approved if you have unexpected repair costs or other unexpected needs.
FAQs about SBA Disaster Assistance
A lot of people have questions about SBA disaster assistance. That’s completely understandable, since most people don’t realize that SBA can do more than just help business owners!
Let’s talk about some of the most common questions and answers.
Do you have to pay back SBA disaster loans?
Yes. SBA disaster assistance loans are not grants, they are loans. This means that you have to pay them back. However, SBA offers very low interest rates with terms that extend up to 30 years to make the payments as easy as possible.
What is the SBA disaster loan disbursement process?
The SBA disaster loan disbursement process is fairly simple. You’ll receive an initial disbursement of up to $25,000 within five days after you sign your closing documents. A case manager will work with you after you receive that first payment. The case manager will be responsible for scheduling the remaining payout.
What are the SBA disaster loan credit score requirements?
The SBA does not advertise the required credit scores. Some lenders estimate that the SBA prefers to see credit scores above 620, but that advice seems to be based on the fact that most lenders prefer to see credit scores above that figure. Other sources claim that you need to have a credit score above 500.
Although it is not clear what credit score is required, we do know that you need to apply for an SBA loan before you can get help from certain other assistance programs. The worst they can do is say no, so it doesn’t hurt to try!
Can I use SBA disaster loan to buy a house?
That’s a difficult question, so I reached out to the Small Business Administration for clarification. According to the SBA:
Generally, borrowers must use their disaster loan eligibility to replace the disaster damaged property in like kind. However, in some situations, we can allow the applicant to purchase property different from what was damaged as a result of the disaster. Any request to use disaster loan proceeds for other than approved purposes must be approved by SBA in advance.SBA, via email
Obviously, you’ll need SBA approval ahead of time. However, you can use your SBA disaster loan to buy or build a conventional home, purchase a manufactured home, or even buy an entirely different home on a different property.
However, in all cases, the borrower would need to speak to their loan officer or case manager before proceeding with any action.
The SBA disaster assistance program can help renters, homeowners, business owners and nonprofit administrators recover from a declared disaster. These programs can help you repair or replace your home and personal belongings. In many cases, you will need to apply for an SBA disaster assistance loan before you can get approval for other programs.