What is an SBA disaster loan?


What is an SBA disaster loan?

A disaster loan from the Small Business Administration is a low-interest loan offered at a point of extreme need with the aim of helping small businesses stay open and retain their property and other assets.

SBA disaster loans are for small businesses, non-profit organizations, homeowners, and renters who may be experiencing financial hardship due to an acute circumstance beyond their control—usually a catastrophe or disaster. These loans may help cover a gap in insurance coverage, or simply provide a sustaining financial bridge until insurance claims can be processed and funds dispersed. 

In cases like the current environment, where the disaster may not be covered by insurance, the SBA specifically administers loans through the Economic Injury Disaster Loan program.

The Economic Injury Disaster Loan program

The Economic Injury Disaster Loan program (EIDL) cover provides funding in the form of loans up to $2 million depending on the needs of the business. Repayment terms are usually crafted to meet the needs and ability of the business as well. 

Rather than covering the physical injuries caused by a disaster, EIDL covers the economic losses. For example, if your business sustained significant damage during a disaster (flood, tornado, etc.), then the loan may cover repairs, losses, as well as lack of income during the disaster and rebuilding period. 

On the other hand, if your business wasn’t physically damaged by the disaster, but was closed or inaccessible (as is the case with current coronavirus quarantines), the loan may cover the costs of business income you lost due to the disaster conditions. 

State Governors can make Presidential or Agency requests that an area be considered to be affected by disaster. Secretaries of Agriculture, Commerce, or even military entities can also declare disasters based on circumstances that are damaging to the public. 

For more information about how disasters are classified and declared turn to FEMA.

Coronavirus introduces a need for disaster loans

As defined by FEMA, a “disease or pandemic” qualifies as the kind of disaster for which small businesses may appeal to federal and state governments for assistance. 

The coronavirus has taken a particular toll on American businesses, especially small franchises. 

Local businesses in particular are reporting issues with supply and nosediving sales, according to CNBC. Some predictions suggest 3.5 million jobs could be lost, reaching 6% unemployment. In response to these economic hardships caused by the coronavirus, many states have declared disaster in order to provide financial assistance to small businesses. 

According to Forbes, the demand side of the economy is primarily taking the hit from COVID-19—and the looming economic uncertainty isn’t helping.