The Complete Guide on SBA Disaster Loans

Disasters caused by extreme weather or other emergency situations are more common than you might think. It’s a good idea to prepare your home or business with an emergency plan to help things run smoother in the event of such a disaster. Part of your emergency plan should include safeguarding certain information, so you can find it quickly when it’s time to clean up from the disaster.

You will need the phone number of your insurance agent along with policy numbers and other insurance documentation. Unfortunately, not all damages are covered by insurance, meaning a disaster may leave you without the means for a successful recovery. The Small Business Administration (SBA) provides loans for disaster recovery.

How Do SBA Loans Work for Disaster Relief?

Whether you own a house, rent a property or operate a small business in a disaster-designated area, you may be eligible for financial assistance from the U.S. Small Business Administration (SBA). You don’t have to own a business to take advantage of these long-term, low-cost loan programs offered by the SBA either. For disaster recovery costs that are not covered by insurance, SBA loans can help.

The SBA database contains an updated list of areas designated by the President as disasters. If your property loss is in an area officially designated as a disaster, certain SBA loan programs can be extended to you, if you meet the criteria. Low-interest loans are available to help you restore your primary residence to its pre-disaster condition. Vacation properties and second homes do not qualify for this loan program.

SBA disaster loans cannot be used to upgrade your property unless the building code requires it. Disaster restoration projects that do not qualify for an SBA loan may be covered by their refinancing plan. Properties that qualify may be refinanced for up to 20 percent more than the remaining mortgage balance if those funds are to be used to improve the property to protect it from future disasters.

Renters may also qualify for SBA disaster relief loans to replace lost personal property. A maximum of $40,000 could be available for each qualified renter to be used on furniture and other belongings that are not part of the structure of the residence. Expensive items such as antiques and collectibles cannot be replaced using these funds.

Types of SBA Disaster Relief Loans

SBA offers disaster relief loans in five different categories to cover most financial losses from a disaster, including home, business, farm or military.

1. Business Physical Disaster Loan

To be eligible for financial assistance from SBA for physical losses from a disaster, you need to be in a declared disaster-stricken area. Most non-profit organizations qualify for this type of assistance, as well as any size businesses.

This kind of financial assistance can be used for repair or replacement of the following:

• Machinery and Equipment
• Leasehold improvements
• Real Property
• Fixtures and inventory

Business Physical Disaster Loan Requirements:

To benefit from this program, you must have a business declared to be in the area which has suffered the disaster.

Terms of Business Physical Disaster Loan:

The term of these loans is restricted to three years for businesses that have available credit elsewhere. If you cannot borrow the money you need to restore the physical aspects of your business following a disaster, you could be eligible for a 30-year loan from SBA. Repayment terms are set on an individual basis based on your ability to pay.

Business Physical Disaster Loan Application Process:

The application process requires several documents, many of which should be notarized before submission.  The completed loan application along with a dated and signed IRS form 8821 should be submitted, thereby rendering permission to IRS, to provide your tax return information to SBA. A schedule of liabilities and a personal financial statement are also required. In addition to these documents, you may be required to submit recent profit and loss statements.

2. Economic Injury Disaster Loans

For some businesses, the physical damage from a disaster may not be serious, but there is substantial economic injury. This SBA loan program is designed to help those businesses recover from economic losses so they can resume operations as quickly as possible.

Economic injury may include financial obligations your business can no longer meet because of the disaster. These loans are not meant to rescue businesses with financial troubles before the disaster. EID loans provide positive cash flow while your business is recovering from disaster.

Economic Injury Disaster Loan Requirements:

If your small business or non-profit organization is located in a declared disaster area and has suffered economic injury from the disaster, it may qualify for an EID loan. You may also qualify if you are located in a contiguous county to the disaster area.

Terms of Economic Injury Disaster Loan:

Your ability to repay the loan is considered when setting the terms. Up to $2 million is available in SBA disaster loans for each qualifying business. EID loans do not include closing fees or penalties for early repayment.

Economic Injury Disaster Loan Application Process:

You can apply for an EID loan online by completing an application form. You will also be required to submit a tax form allowing the IRS to send your tax information to SBA.

3. Home and Property Disaster Loans

The SBA makes up to $200,000 available to qualified homeowners for disaster recovery. These are loans and not grants, so they must be repaid. Even so, the SBA can offer them at a very low interest rate with no additional costs and fees.

Those who qualify may also refinance their mortgage through SBA and extend the amount of their loan. Refinancing can lower monthly mortgage payments and free up additional cash for home repairs related to the disaster. By extending the term of the mortgage, SBA can potentially lower the number of monthly payments.

Home and Property Disaster Loan Requirements:

Eligible homeowners will be located in the designated disaster area and have sustained physical damage to their property. Renters who suffered the loss of personal property may also qualify for these types of loans.

Terms of Home and Property Disaster Loan:

Similar to any other disaster fund borrowed from SBA, the home and property disaster loans are also free from any upfront or early repayment penalty charges. Financial assistance of up to $40, 000 dollars may be provided to renters to repair or replace their personal property, while a sum of up to $2 million can be loaned to homeowners to rebuild their primary residence. The SBA sets repayment terms based on their assessment of a homeowner’s ability to make payments.

Home and Property Disaster Loan Application Process:

The application process for the home and property disaster loans is the same as the other loans provided by SBA. Significant documentation of physical loss and financial circumstances are required and should be notarized.

4. Emergency Farm Loans

The U.S Department of Agriculture’s Farm Service Agency offers emergency farm loans that may help an individual to:

• Pay off the living expenses of the family
• Reorganize the operation of the farm
• Refinance certain obligations
• Replace all the indispensable properties
• Pay the expenses of the production for the disaster year partly or wholly.

Emergency Farm Loan Requirements:

If you are a farmer or a breeder, then you can borrow an Emergency Farm Loan if you have satisfied the following conditions.

• You are a permanent citizen or a resident of the U.S
• Your credit history is not doubtful
• You have the ability to repay
• You have incurred a loss of 30% in the production of crops or physical loss of livestock
• The commercial sources are denying you the credit
• Your farm area has been designated as a quarantined or disaster-affected area by the President or the Secretary of Agriculture.
• You are an experienced and established family farm operator.
• You can provide a guarantee for securing a fund.

Term of Emergency Farm Loans:

If you’re eligible for this loan, you can borrow up to 100 percent of your production or livestock loss, ranging approximately up to $5 million. Apart from the other terms and conditions applied, the losses incurred in case of production of crops and livestock must exceed the limit of 30 percent. The loan repayment tenure may range from 20 to 40 years depending on the seriousness of the loss.

Emergency Farm Loan Application Process:

To apply for this loan, you must submit your form along with all your necessary documents to your nearest USDA service center or FSA office.

Military Reservist Economic Injury Disaster Loan Program

A Military Reservist Economic Injury Disaster loan is meant to help a business cope with economic hardship brought on by the absence of an employee who is called to active duty in time of crisis. In case of a disaster or other emergency demand for military reserves personnel, an employer is required to hold open their jobs. This may necessitate hiring temporary staff to complete the job in their absence and can pose an insurmountable economic hardship on the business, especially if active duty continues for an indefinite period of time.

Military Reservist Economic Injury Disaster Loan Requirements:

A business owner has to demonstrate a financial hardship directly related to the absence of a military reservist to qualify for these loans. They are not available to anyone who has other means of recovering from the financial loss. SBA requires reasonable assurance that the business will be able to repay the loan in the form of collateral valued at $50,000 or more. SBA considers available real estate as a guarantee. SBA will not deny assistance to a business without collateral, but the borrower is required to provide any collateral available.

Term of Military Reservist Economic Injury Disaster Loan:

The maximum amount of the funds potentially available to a single business entity is $2 million. The interest rate depends on several circumstances but will not exceed 4 percent annually. The maximum term of these loans is 30 years, and its maturity is truly based on the borrower’s ability to repay the sum.

Military Reservist Economic Injury Disaster Loan Application Process:

At their own convenience, the borrowers may apply online for disaster loan assistance from SBA.

SBA disaster assistance loans make it possible for businesses and individuals to recover financially after a disaster. These loan instruments fill some of the gaps left by most insurance policies and other disaster relief support.

Things to Consider When Applying for an SBA Loan for Disaster Relief

Determining your eligibility is the first concern following a disaster. Since each SBA loan type requires a separate application, it’s important to understand which one you might qualify for.

Business owners should initiate their application immediately through the online procedure. The SBA website is the fastest way to receive a positive determination. Irrespective of the size of a business, the economic loss can be covered by applying for up to $2 million of financial assistance.

The following items are required for filling the application:

• Documents to prove the extent and scope of damages
• Statements for profit and loss
• The records of Tax filing
• Asset list and records of depreciation
• Address, contact information, legal name of business and ownership details

The application may also ask for additional items such as information about your business type and size. The application may also request an in-depth record of any of the items listed at any point during the application procedure. To support your application, you should keep digital copies of all relevant records.

It must be understood that not everyone who applies for financial assistance will be designated eligible and that the procedure takes time to go through. Therefore, to ensure your eligibility for the financial assistance, you must consider these criteria and be patient while the procedure is going on. If you feel that your disaster needs to be covered, and it is not, then you may immediately go to the local officials to get registered.

Other Options for Disaster Relief Loans

When disaster strikes an area, local officials ask for help from the Federal Government. The Federal Government, in turn, seeks the assistance of different organizations that could extend their help through financial assistance in the disaster-designated area. The SBA disaster relief loans help people to overcome the situation and rebuild their homes and businesses to get them on track. Apart from SBA disaster recovery loans, other organizations also extend their financial help to the survivors.

Mortgage Loans for Disaster Relief

The mortgage assistance providers also offer feasible options to the people who have been affected by a disaster. The borrowers who prove their eligibility to apply for a mortgage loan can receive the following benefits:

• No charge for late payment of the loan or no penalty for missed payment
• Higher or burdensome monthly payments can be avoided with the modification of the loan
• No report will be made to the credited bureau for missed or suspended payments
• Reduction of mortgage payments up to 12 months is possible

A mortgage can help homeowners use existing equity in their homes to pay for restoration following a disaster. Mortgage loans can be extended with favorable terms to homeowners who live in disaster-designated areas.

Other Private Organizations

Other private organizations also understand the difficult and stressful time for home and business owners following a disaster. For this reason, many offer help to people in disaster-designated areas. The assistance provided by these organizations includes a certain range of benefits such as:

• Fixed rate of interest against loan
• No availability of property or asset required
• Availability of loans up to $5000
• Assurance of better financial solution with flexibility of terms of the loan
• Member loyalty discounts can be redeemed by maintaining a proper record

SBA and other organizations are always a step ahead to help you cope up with disaster-related circumstances. They are always waiting to extend you their financial help while you are struggling to get back on track — whether it’s your home or business that was affected by a disaster.

All disaster loans from SBA and other organizations require documents to be notarized. Find a mobile notary in your area and schedule notary services to be available on-site when and where you need them.