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The Ultimate Guide to Getting Disaster Loan Assistance

Published June 14th, 2022 by Cornerstone Capital Advisors

The US has seen several natural disasters attacking its cities and towns in the last few years. Massive wildfires in California destroyed businesses and homes. A CNBC report found that 1 in 10 American households suffered a natural disaster in 2021.

When these disasters strike, they can have catastrophic effects on businesses. As such, it's critical for businesses to know what help exists if they face these circumstances. 

One of the first lines of defense against these circumstances is disaster loan assistance. Small businesses and nonprofits in declared disaster areas may qualify for these loans to receive the help they need. 

If you're unfamiliar with small business loan disaster assistance, don't worry! We'll provide the information you need in the guide below. So, without further ado, let's jump right in!

What Is Disaster Loan Assistance SBA?

The disaster loan program is an initiative supported by the Small Business Administration (SBA). Its goal is to provide economic support and relief to businesses affected by natural disasters. Alternatively, disaster loan assistance can also help companies struck by civil unrest. 

This program often helps businesses through natural disasters like hurricanes and wildfires. For example, many companies in Louisiana used these loans to recover from the damage left by Hurricane Ida.

Types of Disaster Loan Assistance: EIDL Loans

There are a few different types of disaster relief loans. One of the most common types of loans is the Economic Impact Disaster Loan (EIDL). 

Businesses qualify for EIDLs when they've suffered "substantial economic injury." This injury renders the business incapable of meeting its obligations. As a result, these businesses cannot cover necessary operating expenses because of the disasters that strike them. 

Like most loans, EIDLs have an interest rate. This interest has a maximum cap of 4%, making it more affordable than many other loans. These loans also have a maximum term length of 30 years.

An EIDL loan usually won't go above $2 million. The money is fungible once your business receives it. 

What does this mean? In short, it allows your business to spend the money wherever necessary for your business. These include:

  • Payroll
  • Payable accounts
  • Equipment and machinery purchases
  • Real estate payments
  • Remaining bills 

Since 2020, businesses have also suffered economic damage from COVID-19. This led to the creation of a subset of EIDLs. 

COVID-19 EIDL Program

The SBA offers a COVID-19 EIDL program for small businesses that suffered critical financial damage. In the early days of the pandemic, lockdowns caused many local businesses to lose revenue. 

Since COVID affected businesses across the US, any American small business can receive a disaster relief loan for COVID. You can apply for this loan online through the SBA website. 

Business Physical Disaster Loans

The SBA Business Physical Disaster Loan covers losses that your insurance policy doesn't. When you apply for this loan, you can include any insurance proceeds you've had to pay. Usually, this will include money you pay to an outstanding mortgage on a damaged building. 

Once you receive your loan, you can use it to repair or replace any of the following features:

  • Real property
  • Machinery and technology
  • Equipment
  • Fixtures
  • Inventory stock
  • Leasehold improvements

You can also take steps to increase the amount of money you receive. For example, you can make improvements to reduce your risk of future property damage caused by natural disasters. Such steps could gain up to 20% more than your real estate damage cost in your loan.

Please note that these loans could incur higher interest rates. However, your loan will not exceed 8% interest. 

Who is Eligible for EIDL Assistance? 

The Small Business Association determined that any small business located in a declared disaster area is eligible for an EIDL. The same holds for agricultural cooperatives and nonprofit organizations. 

Please note that each of the following entities can declare a location a disaster area:

  • The Small Business Association
  • The President of the United States
  • The Secretary of Agriculture

EIDLs focus primarily on small businesses and nonprofit organizations. However, the government hasn't forgotten about larger corporations. 

Fortunately, businesses of all sizes located in disaster areas can apply for a Business Physical Disaster Loan. The same holds for private nonprofits. 

How Do SBA Disaster Loans Operate?

When you apply for a FEMA disaster assistance loan, you'll do so through the SBA. However, this program is a government-backed loan program. 

While a standard bank provides you with your loan, the SBA guarantees that loan to the bank. The SBA covers the loss even if your business cannot pay the loan back to the bank. 

Loans exceeding a particular value require you to put up collateral. This collateral ensures that your business must pay back the loan. Otherwise, you'll lose that valuable asset.  

Usually, an SBA loan won't require collateral if the funds are below $25,000. Generally, the preferred collateral is real estate.

Loans of less than $200,000 won't require the business owner to use their primary residence as collateral. But, those businesses must also have other assets of equal quality. These assets must also have a value equal to or exceeding the loan amount. 

As mentioned before, a government loan can reach as much as $2 million. If your loan amount exceeds $200,000, you'll likely need to put up your primary residence as collateral. 

How to Apply For Disaster Loan Assistance

So, how do you apply for disaster loan assistance? First, you'll use your disaster loan assistance login to apply online for your loan. The SBA will then send an inspector to estimate the cost of damage on your property. 

After this, you'll complete your IRS Form 4506-T and sign the document. Your signature gives the IRS permission to give the SBA access to your tax return information. 

Decide If Disaster Loan Assistance is Right For You

As you can see, disaster loan assistance can provide significant help for your business. It can help you get back on your feet if you've suffered from a natural disaster. 

So, how can you decide if this loan is right for you? We recommend talking with financial advisors like us!

Financial advisors can help your business make the best choice for your financial situation. Contact us today to receive guidance on your finances!


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